<PAGE> 1
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL QUARTER ENDED JUNE 30, 1996 COMMISSION FILE NUMBER 0-27038
VISIONEER, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 94-3156479
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
</TABLE>
2860 WEST BAYSHORE ROAD
PALO ALTO, CA 94303
(415) 812-6400
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /.
The number of shares of the registrant's Common Stock, $0.001 par value,
outstanding as of July 30, 1996 was 19,111,431.
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
<PAGE> 2
VISIONEER, INC.
FORM 10-Q
SIX MONTHS ENDED JUNE 30, 1996
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I: FINANCIAL INFORMATION
Item 1: Financial Statements
2
Condensed Balance Sheets at June 30, 1996 and December 31, 1995.............
3
Condensed Statements of Operations for the three month and six month periods
ended June 30, 1996 and June 30, 1995.......................................
4
Condensed Statements of Cash Flows for the six month periods ended June 30,
1996 and June 30, 1995......................................................
5
Notes to Condensed Financial Statements.....................................
Item 2: Management's Discussion and Analysis of Financial Condition and Results of 7
Operations..................................................................
PART II: OTHER INFORMATION
Item 1. Legal Proceedings........................................................... 15
Item 2. Changes in Securities....................................................... 15
Item 3. Defaults Upon Senior Securities............................................. 15
Item 4. Submission of Matters to a Vote of Security Holders......................... 15
Item 5. Other Information........................................................... 15
Item 6. Exhibits and Reports on Form 8-K............................................ 16
Signatures ............................................................................ 17
</TABLE>
1
<PAGE> 3
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
VISIONEER, INC.
CONDENSED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS, EXCEPT FOR SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
-------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................................... $ 33,343 $ 39,909
Short-term investments............................................. 9,273 4,895
Restricted cash.................................................... -- 1,362
Accounts receivable, less allowances of $2,245 and $2,531.......... 8,470 11,138
Inventory.......................................................... 8,805 3,764
Prepaid expenses and other current assets.......................... 1,779 1,542
-------- --------
Total current assets............................................ 61,670 62,610
Property and equipment, net.......................................... 3,220 3,054
Other assets......................................................... 240 129
-------- --------
$ 65,130 $ 65,793
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................... $ 8,793 $ 10,212
Deferred revenue................................................... 555 1,472
Accrued liabilities................................................ 5,090 4,001
Current portion of capital lease obligations....................... 129 248
-------- --------
Total current liabilities....................................... 14,567 15,933
-------- --------
Stockholders' equity:
Common stock, $0.001 par value; 50,000,000 shares authorized at
June 30, 1996 and December 31, 1995; 19,081,699 and 18,371,047
shares issued and outstanding at June 30, 1996 and December 31,
1995, respectively.............................................. 19 18
Additional paid-in-capital......................................... 86,330 79,444
Deferred compensation relating to stock options.................... (300) (350)
Notes receivable from stockholders................................. (416) (446)
Accumulated deficit................................................ (35,070) (28,806)
-------- --------
Total stockholders' equity...................................... 50,563 49,860
-------- --------
$ 65,130 $ 65,793
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE> 4
VISIONEER, INC.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- -------------------
1996 1995 1996 1995
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues:
Product revenues.................................. $ 8,009 $ 6,304 $21,209 $10,286
Royalty revenues.................................. 1,774 -- 6,780 --
------- ------- ------- -------
Total net revenues........................ 9,783 6,304 27,989 10,286
------- ------- ------- -------
Cost of revenues:
Cost of product revenues.......................... 7,039 5,100 17,575 8,232
Cost of royalty revenues.......................... 189 -- 900 --
------- ------- ------- -------
Total cost of revenues.................... 7,228 5,100 18,475 8,232
------- ------- ------- -------
Gross profit........................................ 2,555 1,204 9,514 2,054
------- ------- ------- -------
Operating expenses:
Research and development.......................... 2,647 2,308 5,019 4,282
Selling, general and administrative............... 6,866 2,219 11,999 4,087
------- ------- ------- -------
Total operating expenses.................. 9,513 4,527 17,018 8,369
------- ------- ------- -------
Operating loss...................................... (6,958) (3,323) (7,504) (6,315)
Interest income..................................... 661 122 1,273 171
Interest expense.................................... (24) (22) (33) (42)
------- ------- ------- -------
Net loss............................................ $(6,321) $(3,223) $(6,264) $(6,186)
======= ======= ======= =======
Net loss per share.................................. $ (0.33) $ (0.33)
======= =======
Pro forma net loss per share........................ $ (0.21) $ (0.41)
======= =======
Weighted average common shares and equivalents...... 19,033 15,180 18,987 15,180
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 5
VISIONEER, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-------------------
1996 1995
------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss................................................................. $(6,264) $(6,186)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization....................................... 865 286
Other............................................................... (236) (20)
Changes in assets and liabilities:
Accounts receivable............................................... 2,954 (3,143)
Inventory......................................................... (5,041) 769
Prepaid expenses and other current assets......................... (237) (62)
Other assets...................................................... (111) (3)
Accounts payable.................................................. (1,419) 3,708
Deferred revenue.................................................. (917) 1,984
Other accrued liabilities......................................... 1,089 665
------- -------
Net cash used in operating activities.................................... (9,317) (2,002)
------- -------
CASH FLOWS FROM INVESTMENT ACTIVITIES:
Net investment in available-for-sale securities........................ (4,378) 2,164
Transfer from (to) restricted cash..................................... 1,362 (1,113)
Capital expenditures for property and equipment........................ (1,031) (981)
------- -------
Net cash (used in) provided by investing activities...................... (4,047) 70
------- -------
CASH FLOWS FROM FINANCINGS ACTIVITIES:
Proceeds from issuance of common stock, net............................ 6,917 12,144
Payments on capitalized lease obligations.............................. (119) (100)
------- -------
Net cash provided by financing activities................................ 6,798 12,044
------- -------
Net (decrease) increase in cash and cash equivalents..................... (6,566) 10,112
Cash and cash equivalents at beginning of period......................... 39,909 1,868
------- -------
Cash and cash equivalents at end of period............................... $33,343 $11,980
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 6
VISIONEER, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
NOTE 1 -- BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements of Visioneer,
Inc. (the "Company" or "Visioneer") have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions for Form 10-Q and Article 10 of Regulation S-X. In the
opinion of management, these interim financial statements reflect all
adjustments, consisting of normal recurring adjustments necessary to present
fairly the financial position, results of operations, and cash flows at June 30,
1996, and for all periods presented. Although the Company believes that the
disclosures in these financial statements are adequate to make the information
presented not misleading, certain information normally included in financial
statements and related footnotes prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to the rules and
regulations of the Securities and Exchange Commission. The accompanying
financial statements should be read in conjunction with the audited financial
statements and notes thereto included in the Company's Annual Report on Form
10-K for the year ended December 31, 1995.
The results for the quarter ended June 30, 1996 are not necessarily
indicative of the results that may be expected for the fiscal year ending
December 29, 1996, or any future period.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities on the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
NOTE 2 -- REVENUE RECOGNITION
In 1995, under the terms of the Hewlett-Packard Agreement, the Company
recognized royalty revenues upon Hewlett-Packard's shipment of ScanJet 4s
products to its distributors. Effective January 1, 1996, under a modified
agreement with Hewlett-Packard, the Company now earns royalties when ScanJet 4s
products are shipped to Hewlett-Packard. The net result of this change was an
increase of $2.6 million in royalty revenue recognized for quarter ended March
31, 1996. In the event that Hewlett-Packard does not ship or use internally
products for which royalty is due or has been paid, Visioneer will refund or
waive the royalty for inventory held by Hewlett-Packard after the ScanJet 4s
products are removed from Hewlett-Packard's price list. Based on discussions
with Hewlett-Packard and after considering other factors such as
Hewlett-Packard's estimated sell through rate and size of inventory, the Company
has estimated and provided a reserve for royalty repayments for such units.
NOTE 3 -- INVENTORY
Inventory consisted of the following:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
-------- ------------
(IN THOUSANDS)
<S> <C> <C>
Raw materials.......................................... $2,574 $ 518
Work-in-process........................................ 1,909 2,311
Finished goods......................................... 4,322 935
------ ------
$8,805 $3,764
====== ======
</TABLE>
5
<PAGE> 7
NOTE 4 -- NET LOSS PER SHARE AND PRO FORMA NET LOSS PER SHARE
Net loss per share and pro forma net loss per share data are based upon the
weighted average number of outstanding shares of common stock. Stock options and
warrants are excluded from the calculation of net loss per share for the three
and six month periods ended June 30, 1996 as their effect is anti-dilutive.
Additionally, pursuant to the requirements of the Securities and Exchange
Commission, common equivalent shares, including preferred stock (using the
if-converted method) and stock options and warrants (using the treasury stock
method) issued subsequent to September 1994 through December 11, 1995, have been
included in the computations for the periods through December 11, 1995 as if
they were outstanding for the entire period.
6
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the unaudited
financial statements and notes thereto included in Part I -- Item 1 of this
Quarterly Report and the audited financial statements and notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" for the year ended December 31, 1995 contained in the Company's
Annual Report on Form 10-K for the year ended December 31, 1995.
Except for the historical information contained herein, the matters
discussed in this document are forward-looking statements that involve certain
risks and uncertainties that could cause actual results to differ materially
from those in the forward-looking statements. Potential risks and uncertainties
include, without limitation, those mentioned in this report and, in particular,
the factors described under "Additional Factors That May Affect Future Results,"
and those mentioned in the Company's Annual Report on Form 10-K for the year
ended December 31, 1995 under "Business" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
OVERVIEW
Visioneer designs, develops and markets intelligent paper management
systems. The Company has a limited operating history upon which an evaluation of
the Company and its prospects can be based. The success of the Company will
depend on its ability to generate sales of PaperPort products significantly in
excess of sales during the past several quarters, which in turn will depend in
part on the ability of the Company and its distributors and OEM partners to
convince end users to adopt paper management systems for the desktop and to
educate end users about the benefits of the Company's products. There can be no
assurance that the market for paper management systems will develop or that the
Company will achieve market acceptance of its products. The Company has incurred
annual net losses since inception and expects to post a net loss for the current
year ending December 29, 1996. There can be no assurance that the Company will
be able to return to profitability during any particular period or in the near
future. As of June 30, 1996, the Company had an accumulated deficit of $35.1
million. Although the Company has experienced quarter to quarter revenue growth
in recent periods through the quarter ended March 31, 1996, the growth rates
have not been sustainable. In particular, product revenues declined in the
second quarter and are not expected to increase significantly over at least the
next two quarters. The Company anticipates that it will incur losses during at
least the remainder of 1996 due to lower product sales, the Company's plan to
increase sales and marketing spending, and in view of Hewlett-Packard's decision
to stop buying ScanJet 4s products after the quarter ended March 31, 1996.
7
<PAGE> 9
RESULTS OF OPERATIONS
The following table presents, as a percentage of total net revenues,
certain selected financial data for the three month and six month periods ended
June 30, 1996 and June 30, 1995.
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 30
--------------- ---------------
1996 1995 1996 1995
----- ----- ----- -----
<S> <C> <C> <C> <C>
Revenues:
Product revenues......................................... 81.9% 100.0% 75.8% 100.0%
Royalty revenues......................................... 18.1 0.0 24.2 0.0
----- ----- ----- -----
Total net revenues.................................. 100.0% 100.0% 100.0% 100.0%
Cost of revenues:
Cost of product revenues................................. 72.0% 80.9% 62.8% 80.0.%
Cost of royalty revenues................................. 1.9 0.0 3.2 0.0
----- ----- ----- -----
Total cost of revenues.............................. 73.9% 80.9% 66.0% 80.0%
----- ----- ----- -----
Gross profit............................................... 26.1% 19.1% 34.0% 20.0%
----- ----- ----- -----
Operating expenses:
Research and development................................. 27.1% 36.6% 17.9% 41.6%
Selling, general and administrative...................... 70.2 35.2 42.9 39.7
----- ----- ----- -----
Total operating expenses............................ 97.2% 71.8% 60.8% 81.4%
----- ----- ----- -----
Operating loss............................................. (71.1)% (52.7)% (26.8)% (61.4)%
Interest income............................................ 6.8 1.9 4.5 1.7
Interest expense........................................... (0.3) (0.3) (0.1) (0.4)
----- ----- ----- -----
Net loss................................................... (64.6)% (51.1)% (22.4)% (60.1)%
===== ===== ===== =====
</TABLE>
TOTAL NET REVENUES
Total net revenues for the quarter ended June 30, 1996 were $9.8 million,
an increase of 55% as compared with total net revenues of $6.3 million for the
comparable period in 1995. Total net revenues for the first six months of 1996
were $28.0 million, an increase of 172% as compared with total net revenues of
$10.3 million for the comparable period in 1995. These increases in total net
revenues can be attributed to the market's increasing acceptance of the
Company's solutions for paper management systems.
Overall, the Company's branded product unit shipments increased 56% for the
quarter, relative to the comparable period in 1995, while weighted average
selling prices for all branded products decreased by approximately 28%. Branded
product unit shipments increased 157% for the first six months of 1996, relative
to the comparable period in 1995, while weighted average selling prices
decreased 22%. In June, the Company began shipping a new branded product, a
scanning keyboard, the PaperPort ix.
Net royalty revenues from Hewlett-Packard and Compaq totaled $1.8 million,
representing 18% of total net revenues for the quarter ended June 30, 1996. Net
royalty revenues totaled $6.8 million in the first six months of 1996,
representing 24% of total net revenues for the six month period ended June 30,
1996. No royalties were earned for the three and six month periods ended June
30, 1995. In addition, as disclosed in the Company's Annual Report on Form 10-K
for the year ended December 31, 1995, effective January 1, 1996, under a
modified agreement with Hewlett-Packard, the Company now earns royalties when
ScanJet 4s products are shipped to Hewlett-Packard by Flextronics, Visioneer's
contract manufacturer, and any unrecognized royalty revenues from products
shipped to Hewlett-Packard in 1995 were considered earned and
8
<PAGE> 10
were recognized in the first quarter, resulting in $2.6 million of royalty
revenue. The Company also recorded, for the second consecutive quarter, royalty
revenues associated with shipments of the integrated scanner keyboard by Compaq.
Net revenues from international sales increased to $0.9 million during the
quarter ended June 30, 1996 from $0.1 million in the comparable period of 1995.
Net revenues from international sales increased to $2.7 million during the first
six months of 1996 from $0.4 million in the comparable period in 1995. The
Company continued to build its international business as net revenues from
international sales increased to 9% of total net revenues in the quarter ended
June 30, 1996 compared to 3% for the same period in 1995, and 10% of total net
revenues in the six months ended June 30, 1996 as compared to 4% for the same
period in 1995. The growth of the Company's international business will largely
depend on the Company's ability to introduce internationally localized products
on a timely basis. No assurance can be given that the Company will be able to
build a successful international business.
The Company was informed in April 1996 by Hewlett-Packard that it did not
expect to purchase any additional ScanJet 4s products. After discussions with
Hewlett-Packard, the Company believes that Hewlett-Packard will continue to sell
the ScanJet 4s products through at least the end of 1996 and Hewlett-Packard
informed the Company that it currently had inventory sufficient to last it
through that period. The Company believes that sales of ScanJet 4s products have
been slower than expected due to Hewlett-Packard's minimal marketing efforts. In
the event that Hewlett-Packard stops selling the ScanJet 4s product, the Company
is obligated to refund royalties related to unused inventory of ScanJet 4s
products held by Hewlett-Packard sixty days after that event. Based on
discussions with Hewlett-Packard and after considering other factors such as
Hewlett-Packard's estimated sell through rate and size of current inventory, the
Company estimated the number of units which Hewlett-Packard could have in
inventory in the event it stops selling the ScanJet 4s products, and has
provided a reserve for royalty repayments for such units.
On April 1, 1996, the Company signed a Memorandum of Understanding with
Hewlett-Packard to enter into a second agreement to develop and supply
additional software products to Hewlett-Packard through the third quarter of
1997. Under the Memorandum of Understanding, the Company will continue to supply
its software to Hewlett-Packard for distribution with Hewlett-Packard's existing
flatbed scanners and network scanners. In addition, the new agreement will
license to Hewlett-Packard the right to distribute the Company's software with
additional products. There can be no assurance that the Memorandum of
Understanding will become an agreement between the Company and Hewlett-Packard;
and if the parties do not reach such an agreement, the Company's results of
operations will be materially adversely effected. As of the end of July, the
agreement had not been finalized.
The Company expects that total net revenues for the third quarter of 1996
will be lower than the first quarter of 1996, the Company's highest revenue
quarter, as a result of Hewlett-Packard's decision not to purchase any
additional ScanJet 4s products for the remainder of the contract and the
Company's expectation that sales of PaperPort Vx products in the next several
months may not match sales achieved in the first quarter of 1996 or the fourth
quarter of 1995 following the introduction of such products and the purchase of
initial inventory by the Company's distributors. Furthermore, the Company
expects that lower total net revenues, coupled with increased marketing and
sales expenditures, as discussed below, will result in operating losses for at
least the third and fourth quarters of 1996.
COST OF REVENUES
Cost of revenues as a percentage of total net revenues decreased to 74% in
the quarter ended June 30, 1996 compared to 81% for the comparable period in
1995. For the first six months of 1996, cost of revenues as a percentage of
total net revenues decreased to 66% as compared to 80% for the same period in
1995. These improvements resulted primarily from fixed costs spread over
increased unit shipments, cost reduction programs, other cost efficiencies
associated with higher volume production, and the commencement of higher margin
royalty revenues earned pursuant to the Hewlett-Packard and Compaq OEM
agreements. The improvements to gross margin were enough to offset additional
reserves taken during the first six months of 1996 by the Company to write down
PaperPort 2.0 inventory and to cover a minor product performance issue.
9
<PAGE> 11
In addition, gross margin was adversely affected as a large number of PaperPort
2.0 inventory was sold at very low margins.
Due to variations in product mix, pricing actions, and manufacturing
related costs associated with product transitions, the Company anticipates
quarterly fluctuations in its cost of revenue levels for the foreseeable future.
The Company maintains a strategy designed to increase its market share and
continues to expand its presence in the price-sensitive consumer market place.
This strategy, along with the expectation of a continued aggressive pricing
environment and product transitions, will continue to put pressure on the
Company's cost of revenues and gross margins. As a result of the Company's
continuing efforts to reduce costs, the Company has moved the production of its
PaperPort Vx product line, from Flextronics' San Jose, California facility to
Flextronics' manufacturing facility in China. Full production is expected to
commence early in the third quarter. However, due to start up and transition
costs and existing inventory, the Company does not expect to realize cost
savings for at least the next two quarters.
The Company shipped its PaperPort ix, the scanning keyboard, to customers
for revenue for the first time in the second half of June. The scanning keyboard
is manufactured by NMB Technologies, Inc., of Thailand, the Company's second
major subcontract manufacturer. Essentially all of the Company's hardware
manufacturing is concentrated in Far East Asia. Although this manufacturing
strategy will help reduce product costs in the future, it does expose the
Company to certain economic and political risks associated with doing business
in this region.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses increased 15% to $2.6 million in the
second quarter of 1996 from $2.3 million in the comparable quarter in 1995.
Likewise, research and development expenses increased 17% to $5.0 million in the
six month period ended June 30, 1996 from $4.3 million in the comparable period
in 1995. Although absolute spending increased for both periods, research and
development spending, as a percentage of total net revenues, declined
significantly. The increased spending was primarily due to the hiring of
additional engineers for product development. At June 30, 1996, the Company
employed 51 employees and 21 contractors in research and development compared to
35 employees and 19 contractors at June 30, 1995. The Company believes that the
development of new products and the enhancement of existing products is
essential to its success. Accordingly, the Company anticipates that research and
development expenses of its products will continue to increase in absolute terms
for the foreseeable future. However, such expenses may fluctuate from quarter to
quarter depending on a wide range of factors including the status of various
development projects. To date, the Company has not capitalized any development
costs and does not anticipate capitalizing any such costs in the foreseeable
future.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased 209% to $6.9 million
in the second quarter of 1996 from $2.2 million in the second quarter of 1995,
increasing significantly to 70% from 35% as a percentage of total net revenues.
Selling, general and administrative expenses for the first six months of 1996
increased 194% to $12.0 million from $4.1 million, increasing slightly to 43%
from 40% as a percentage of total net revenues. The increase in spending was
primarily attributed to three major factors. First, the Company had expected
Hewlett-Packard to put considerable marketing effort behind the launch of its
ScanJet 4s products. Because this did not occur, the Company decided to deploy
substantially more direct sales and marketing efforts, beginning in the second
quarter, to create and expand the overall market and build the Company's brand
name and product awareness. In this regard, sales and marketing expenses
increased $2.9 million in the second quarter from year to year and $5.0 million
for the first six months of 1996 as compared to the same period of 1995. Second,
customer support costs increased significantly as a natural consequence of
increased sales, installed base, and expansion of distribution to international
channels, and thirdly, an increase in general administration related employees
and expenses required to support the Company's growing operations. Such expenses
may, however, fluctuate from quarter to quarter, in absolute terms, depending on
a variety of factors, including the timing of the introduction of any new
products, expansion of the Company's distribution channels, general advertising
not related to product introductions and expansion into international markets.
10
<PAGE> 12
OTHER INCOME, NET
Other income, net, consists primarily of interest earned on cash
equivalents and short-term investments. Other income, net, was $636,000 for the
second quarter of 1996 compared to $100,000 for the comparable quarter of 1995.
For the first six months of 1996, other income, net was $1.2 million compared to
$129,000 for the comparable period in 1995. The increases were primarily the
result of an increase in interest income from increased cash equivalents and
short-term investments resulting from the application of proceeds from the
Company's initial public offering in December 1995 and the subsequent exercise
by the underwriters of the over-allotment option in January 1996.
TAXATION
The Company had no tax provision during the first six months ended June 30,
1996 due to the net loss incurred. The Company did not record a tax benefit of
operating losses in 1995 due to the uncertainty of their realization.
LIQUIDITY AND CAPITAL RESOURCES
The Company used $9.3 million of cash for its operating activities for the
six month period ended June 30, 1996, as compared with $2.0 million for the
comparable period in 1995. Negative cash flows from operating activities were
attributed primarily to a net loss of $6.3 million, non-cash charges to income
of $0.6 million and a negative net effect from changes in operating assets and
liabilities of $3.6 million. The negative net effect from changes in operating
assets and liabilities was primarily the result of a $3.0 million decrease in
accounts receivable due to lower sales, which were partially offset by a $5.0
million increase in inventory, and a $1.4 million decrease in accounts payables.
Inventory increased primarily as a result of a planned program to increase the
Company's supply of finished PaperPort Vx's. As the Company transitions its
manufacturing to the Far East, the Company wants to ensure a supply of finished
goods for third quarter shipments. The Company plans on continuing to expand its
product offerings and distribution channels and penetrate international markets.
Consequently, the Company expects that inventory levels will continue to
increase. As a result of such investment in inventory, the Company may be
subject to an increased risk of inventory obsolescence, which could materially
adversely affect the Company's operating results.
The Company used $3.0 million towards investment activities for the six
months ended June 30, 1996. Capital expenditures were $1.0 million for the six
months ended June 30, 1996. The expenditures were primarily for business
information software, personal computers, and computer network equipment. The
Company plans on investing an additional $1.0 million on capital expenditures
for the remainder of fiscal 1996.
Cash provided by financing activities was $6.8 million for the six months
ended June 30, 1996. The majority of the cash was the result of the exercise of
the over-allotment option granted to the underwriters in the December 1995
initial public offering. Proceeds, net of underwriting discounts and related
expenses, from the January exercise of the over-allotment option were $6.6
million.
The Company believes that its existing sources of liquidity will provide
adequate cash to fund its operations for at least the next twelve months.
Thereafter, if cash generated by operations is insufficient to satisfy the
Company's liquidity requirements, the Company may be required to sell additional
equity or debt securities or obtain lines of credit. The sale of additional
equity or convertible debt securities may result in additional dilution to the
Company's stockholders.
ADDITIONAL FACTORS THAT MAY AFFECT FUTURE RESULTS
The Company intends to take advantage of the "Safe Harbor" provisions of
the Private Securities Litigation Reform Act of 1995. Specifically, the Company
wishes to alert readers that the following important factors, as well as other
factors, could in the future affect, and in the past have affected, the
Company's actual results and could cause the Company's results for future
quarters to differ materially from those expressed in any forward-looking
statements made by or on behalf of the Company in this report.
11
<PAGE> 13
Difficulties and Risks Associated with New Product Introduction and
Development
The introduction of major new products and enhancements of existing
products, such as PaperPort Vx, introduced in the fourth quarter of 1995 and the
PaperPort ix, introduced in the second quarter of 1996, has had and will
continue to have a significant impact on the Company's quarterly and annual
revenues. As is characteristic of the initial stages of personal computer
product life cycles, the Company expects that sales volumes of any new product
may increase in the first few months following introduction due to the purchase
of initial inventory by the Company's distributors, as evidenced by strong sales
of PaperPort Vx products in the first quarter of 1996 and the fourth quarter of
1995. Thereafter, revenues may decline or stabilize until the end of a product
life cycle, at which time revenues are likely to decline significantly. To this
extent, the Company feels that the level of sales of PaperPort Vx products
through the balance of 1996 will not match those of the first quarter of 1996
and the fourth quarter of 1995.
The Company must successfully manage the transition to new products and new
versions of existing products. At the end of a product life cycle the Company
may experience higher rates of return of its older products and may have to
lower the prices of such products, which would result in increased price
protection charges and could have a material adverse impact on the Company's net
revenues and operating results. The Company experienced higher than normal rates
of return of its older version products in the fourth quarter of 1995 and the
first quarter of 1996 and did incur significant price protection charges in
connection with the Company's release of PaperPort Vx in October 1995. Due to
the inherent uncertainties of product development and new product introductions,
the Company cannot accurately predict the exact quarter in which a new product
or version will be ready to ship. Any delay in the scheduled release of major
new products would have a material adverse impact on the Company's net revenues
and operating results.
Although the Company does not consider its business to be highly seasonal,
the Company expects that as its market matures its business will follow the
trends in the PC market and will experience seasonally higher sales and earnings
in the fourth quarter of the year.
Fluctuations in Operating Results
The Company has experienced and may continue to experience significant
fluctuations in revenues and operating results from quarter to quarter and from
year to year due to a combination of factors, many of which are outside of the
Company's direct control. These factors include development of the paper
management systems market, demand for the Company's products, the Company's
success in developing, introducing and shipping new products and product
enhancements, the market acceptance of such products, the Company's ability to
respond to new product introductions and price reductions by its competitors,
the timing, cancellation or rescheduling of significant orders, the purchasing
patterns and potential product returns from the Company's distribution channels,
the Company's relationships with its OEM partners and distributors, the
performance of the Company's contract manufacturers and component suppliers, the
availability of key components and changes in the cost of materials for the
Company's products, the Company's ability to attract, retain and motivate
qualified personnel, the timing and amount of research and development and
selling, general and administrative expenditures, and general economic
conditions.
Revenues and operating results in any quarter depend on the volume, timing
and ability to fulfill customer orders, the receipt of which is difficult to
forecast. A significant portion of the Company's operating expenses is
relatively fixed in advance, based in large part on the Company's forecasts of
future sales. If sales are below expectations in any given period, the adverse
effect of a shortfall in sales on the Company's operating results may be
magnified by the Company's inability to adjust operating expenses to compensate
for such shortfall. Accordingly, any significant shortfall in revenues relative
to the Company's expectations would have an immediate material adverse impact on
the Company's business, operating results and financial condition. The Company
expects that total net revenues for the third quarter of 1996 will be lower than
the first quarter of 1996 as a result of Hewlett-Packard's decision not to
purchase any additional ScanJet 4s products for the remainder of the contract
with the Company and the Company's expectation that sales of PaperPort Vx
products in the next several months may not match sales achieved in the first
quarter of 1996 and the fourth quarter of 1995 following the introduction of
such products and the purchase of initial inventory by the
12
<PAGE> 14
Company's distributors. Furthermore, the Company expects that such lower total
net revenues, coupled with increased marketing and sales expenditures, as
discussed below, will result in operating losses for at least the third and
fourth quarters of 1996. The Company may also be required to reduce prices in
response to competition or increase spending to pursue new product or market
opportunities. In this regard, the Company reduced the retail price on its
PaperPort Vx products from $369 to $299 on January 29, 1996. In the event of
significant additional price competition in the market for the Company's
products, which is expected, the Company will be required to decrease costs at
least proportionately and will be at a significant disadvantage compared to
competitors with substantially greater resources, which could more readily
withstand an extended period of downward pricing pressure. The Company realizes
substantially more revenue from the sale of its branded products than from its
royalty arrangements. However, the effect on gross profit and net income from
any shifts in product mix between branded products and royalty arrangements is
uncertain and depends on the Company's ability to control its costs.
Due to all of the foregoing factors, that the Company's operating results
have been below the expectations of public market analysts and investors in the
past and may again be below such expectations in the future. In such event, the
price of the Company's Common Stock would likely be materially adversely
affected. Accordingly, the Company's prospects must be considered in light of
the risks, expenses and difficulties frequently encountered by companies
participating in new and rapidly evolving markets. There can be no assurance
that the Company will be successful in addressing such risks.
Dependence on Contract Manufacturers
The Company has an independent contract manufacturing agreement with
Flextronics. Up until the second quarter of 1996, Flextronics has accounted for
nearly all of the Company's material's procurement, assembly, system
integration, testing and quality assurance. Commencing in the second quarter,
the Company began contracting the manufacture of its new scanning keyboard, the
PaperPort ix, with NMB Technologies, Inc. on a purchase order basis. As of July
31, 1996, there was no final manufacturing agreement between NMB and the
Company. There can be no assurance that a final agreement will be reached, which
may result in interrupted or ceased production of PaperPort ix product. Both
manufacturing partners are located in the Far East, and therefore, the Company
is exposed to the political and economic risks associated with doing business in
this region, which could have a material adverse effect on the Company's
business, operating results and financial condition. Furthermore, commencement
of production of products at new or existing facilities involves certain
start-up risks, such as those associated with the procurement of materials and
training of production personnel, which may result in delays and quality issues.
The current agreement with Flextronics allows Flextronics to terminate the
agreement with limited notice. In addition, the current purchase order
arrangement with NMB would allow NMB to terminate the arrangement by not
accepting the Company's purchase orders. The unanticipated loss of Flextronics
or NMB could cause delays in the Company's ability to fulfill orders while the
Company identifies a replacement manufacturer. Such an event would have a
material adverse effect on the Company's business, operation results and
financial condition.
The Company's manufacturing policies are designed to respond to rapid
changes in customer demand, but may in certain instances result in excess or
insufficient inventory, or inappropriate mix of component inventory, if orders
do not match forecasts. To date, the Company's inventory of PaperPort Vx
reflects the Company's expected inventory requirements based on forecasted
sales, however, there can be no assurance that actual sales will match
forecasts. To the extent the Company has excess inventory, the Company may
experience inventory write-downs or may have to lower prices of its product
which would result in substantial price protection charges and a negative impact
on gross margins. The inability of the Company's contract manufacturers to
provide the Company with adequate supplies of high quality products at
acceptable prices could have a material adverse effect on the Company's
business, operating results and financial condition.
Dependence on Distributors
To date, the Company has derived a substantial portion of its revenues from
sales through its independent distributors. Although the Company has established
two strategic OEM partnerships, the Company expects that sales through its
independent distributors will continue to account for a substantial portion of
its revenues
13
<PAGE> 15
for the foreseeable future. Sales to the top four independent distributors in
the first six months of 1996 accounted for 50% of the Company's net revenues
compared to 92% for the comparable period of 1995. The Company believes this
percentage will continue to decrease in the future because of its efforts to
expand its distribution channels domestically and internationally. The Company's
agreements with its distributors are not exclusive, and each of the Company's
distributors can cease marketing the Company's products with limited notice and
with little or no penalty. There can be no assurance that the Company's
independent distributors will continue to offer the Company's products or that
the Company will be able to recruit additional or replacement distributors. The
loss of one or more of the Company's major distributors would have a material
adverse effect on the Company's business, operating results and financial
condition. Many of the Company's distributors offer competitive products
manufactured by third parties. There can be no assurance that the Company's
distributors will give priority to the marketing of the Company's products as
compared to competitors' products. Any reduction or delay in sales of the
Company's products by its distributors would have a material adverse effect on
the Company's business, operating results and financial condition.
Dependence on Component Suppliers
A substantial portion of the total manufacturing cost of the PaperPort is
represented by various components, particularly PCBAs, a contact image sensor
array and the Company's ASIC. Prices of these components can fluctuate
significantly depending primarily upon the availability of these components.
Because the market for paper management systems and, in particular, the
Company's products, is new and rapidly evolving, the Company's ability to
forecast its demand for key components is limited. Due to the long lead times
for procurement of certain materials and components ordered by the Company, and,
to the extent orders for the Company's products exceed its initial forecasts,
the Company may be required to incur expenses for expediting procurement of key
components. The Company incurred such expenses for expediting procurement of key
components in the quarter ended December 31, 1995 and expects that it may in the
future be required to incur similar expenses for expediting procurement of key
components. In addition, the introduction of new products is accompanied by
certain start-up, warranty, and rework costs which are generally incurred in the
initial stage of production of such new products. As a result of technological
improvements implemented in connection with the Company's development of
PaperPort Vx, particularly with regard to the ASIC, the unit cost of PaperPort
Vx declined as compared to the prior version. However, as the Company
transitions to new products, it does not expect that it will experience similar
unit cost reductions in the foreseeable future. Although the Company plans to
continue to pursue cost-reduction efforts to lower unit costs, no assurance can
be given that the Company's efforts to reduce product costs will be successful.
Intensely Competitive Market
The computer and peripherals industry has been characterized by ongoing
rapid price erosion and resulting pressure on gross margin. For example, in
connection with the Company's introduction of the PaperPort Vx, the Company
lowered the price of its existing PaperPort products which adversely impacted
the Company's gross margin for such products shipped in the quarter ended
December 31, 1995. Subsequently, the Company lowered the prices of PaperPort Vx
effective January 29, 1996. The Company expects that, based on historical trends
in the computer and peripherals industry and, in particular, on the Company's
recent observations and experiences in the paper management systems market,
prices will continue to decline in the future and that competitors will offer
products which meet or exceed performance and capabilities of the Company's
products. The Company intends to introduce new hardware designs, software
upgrades, accessory products and new software features, in part, to respond to
anticipated competitive price pressures and new product introductions. If prices
fall faster than expected by the Company, or if the Company reduces its prices
in order to become or remain competitive or for any other reason, the Company
may be unable to respond with significant cost reductions and its gross margin
could be materially adversely affected. In addition, the Company's gross margin
will depend in part on other factors outside of the Company's control, including
the availability and prices of key components, the success of the Company's
product transition, competition, the timing and amount of royalties received
under its OEM arrangements and general economic conditions. Fluctuations in
gross margin could have a material adverse effect on the Company's financial
condition and operating results.
14
<PAGE> 16
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS IN SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its Annual Meeting of Stockholders on May 17, 1996. There
were present at the meeting, in person or represented by proxy, the holders of
12,282,952 shares of Common Stock, which represented approximately 70% of the
outstanding shares of Common Stock. The matters voted on at the meeting and the
votes cast were as follows:
1. All Management's nominees for directors were elected as listed below:
<TABLE>
<CAPTION>
NAME OF NOMINEE VOTES CAST
------------------------------------------------ ----------------------------
<S> <C> <C>
Michael A. McConnell............................ For: 12,272,152
Against: 0
Abstain: 10,800
William J. Harding.............................. For: 12,272,152
Against: 0
Abstain: 10,800
James P. Lally.................................. For: 12,162,153
Against: 0
Abstain: 120,799
David F. Marquardt.............................. For: 12,162,153
Against: 0
Abstain: 120,799
Vincent Worms................................... For: 12,272,152
Against: 0
Abstain: 10,800
</TABLE>
2. The ratification of the reappointment of Price Waterhouse LLP as the
Company's Independent Accountants fiscal year ending December 29, 1996.
There were 12,263,717 Common Shares voting in favor, 12,250 Common
Shares voting against and 6,985 Common Shares abstaining.
ITEM 5. OTHER INFORMATION
None
15
<PAGE> 17
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- - ----------- --------------------------------------------------------------------------
<C> <S>
10.19 Building Lease dated May 21, 1996 between the Registrant and John
Arrillaga, Trustee, or his Successor Trustee, UTA dated 7/20/77 (Arrillaga
Family Trust) as amended, and Richard T. Peery, Trustee, or his Successor
Trustee, UTA dated 7/20/77 (Richard T. Peery, Separate Property Trust) as
amended.
11.1 Statement of Computation of Net Loss per Common Shares and Equivalents.
27.1 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the period.
16
<PAGE> 18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
August 14, 1996 Visioneer, Inc.
/s/ Geoffrey C. Darby
--------------------------------------
Geoffrey C. Darby
Vice President of Finance and
Administration and
Chief Financial Officer (Principal
Financial and
Accounting Officer)
17
<PAGE> 19
VISIONEER, INC.
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NO. DESCRIPTION OF EXHIBIT NUMBERED PAGE
- - ----------- ---------------------- -------------
<S> <C> <C>
10.19 Building Lease dated May 21, 1996 between the Registrant and John Arrillaga, 20
Trustee, or his Successor Trustee, UTA dated 7/20/77 (Arrillaga Family Trust)
as amended, and Richard T. Peery, Trustee, or his Successor Trustee, UTA
dated 7/20/77 (Richard T. Peery, Separate Property Trust) as amended.
11.1 Statement of Computation of Net Loss per Common Shares and Equivalents. 36
27.1 Financial Data Schedule 37
</TABLE>
<PAGE> 1
BLDG: Ardenwood II
OWNER: 500
PROP: 142
UNIT: 1
TENANT: 14202
LEASE AGREEMENT
THIS LEASE, made this 21st day of May, 1996 between JOHN ARRILLAGA, Trustee,
or his Successor Trustee, UTA dated 7/20/77 (ARRILLAGA FAMILY TRUST) as
amended, and RICHARD T. PEERY, Trustee, or his Successor Trustee, UTA dated
7/20/77 (RICHARD T. PEERY, SEPARATE PROPERTY TRUST) as amended, hereinafter
called Landlord, and VISIONEER, INC., a Delaware Corporation, hereinafter
called Tenant.
WITNESSETH:
Landlord hereby leases to Tenant and Tenant hereby hires and takes from
Landlord those certain premises (the "Premises") outlined in red on Exhibit "A"
attached hereto and incorporated herein by this reference thereto more
particularly described as follows:
ALL OF THAT CERTAIN 41,472 +/_ SQUARE FOOT, ONE-STORY BUILDING LOCATED AT 34800
CAMPUS DRIVE, FREMONT, CALIFORNIA 94555. SAID PREMISES IS MORE PARTICULARLY
SHOWN WITHIN THE AREA OUTLINED IN RED ON EXHIBIT A ATTACHED THERETO. THE
ENTIRE PARCEL, OF WHICH THE PREMISES IS A PART, AND EXCLUSIVE PARKING
APPURTENANT THERETO, IS SHOWN WITHIN THE AREA OUTLINED IN GREEN ON EXHIBIT A
ATTACHED. THE PREMISES SHALL BE IMPROVED IN THE CONFIGURATION AS SHOWN ON
EXHIBIT B TO BE ATTACHED HERETO (THE "TENANT IMPROVEMENTS"), AND IS LEASED ON AN
"AS IS" BASIS, IN ITS PRESENT CONDITION, AND IN THE CONFIGURATION AS SHOWN IN
RED ON EXHIBIT B TO BE ATTACHED HERETO.
The word "Premises" as used throughout this lease is hereby defined to
include the nonexclusive use of landscaped areas, sidewalks and driveways in
front of or adjacent to the Premises, and the nonexclusive use of the area
directly underneath or over such sidewalks and driveways. The gross leasable
area of the Premises shall be measured from outside of exterior walls to
outside of exterior walls, and shall include any atriums, covered entrances or
egresses and covered building loading areas.
Said letting and hiring is upon and subject to the terms, covenants and
conditions hereinafter set forth and Tenant covenants as a material part of the
consideration for this Lease to perform and observe each and all of said terms,
covenants and conditions. This Lease is made upon the conditions of such
performance and observance.
1. USE Tenant shall use the Premises only in conformance with applicable
governmental laws, regulations, rules and ordinances for the purpose of general
office, light manufacturing, research and development, and storage and other
uses necessary for Tenant to conduct Tenant's business, provided that such uses
shall be in accordance with all applicable governmental laws and ordinances,
and for no other purpose. Tenant shall not do or permit to be done in or about
the Premises nor bring or keep or permit to be brought or kept in or about the
Premises anything which is prohibited by or will in any way increase the
existing rate of (or otherwise affect) fire or any insurance covering the
Premises or any part thereof, or any of its contents, or will cause a
cancellation of any insurance covering the Premises or any part thereof, or any
of its contents. Tenant shall not do or permit to be done anything in, on or
about the Premises which will in any way obstruct or interfere with the rights
of other tenants or occupants of the Premises or neighboring premises or injure
or annoy them, or use or allow the Premises to be used for any improper,
immoral, unlawful or objectionable purpose, nor shall Tenant cause, maintain or
permit any nuisance in, on or about the Premises. No sale by auction shall be
permitted on the Premises. Tenant shall not place any loads upon the floors,
walls or ceiling which endanger the structure, or place any harmful fluids or
other materials in the drainage system of the building, or overload existing
electrical or other mechanical systems. No waste materials or refuse shall be
dumped upon or permitted to remain upon any part of the Premises or outside of
the building in which the Premises are a part, except in trash containers
placed inside exterior enclosures designated by Landlord for that purpose or
inside of the building proper where designated by Landlord. No materials,
supplies, equipment, finished products or semi-finished products, raw materials
or articles of any nature shall be stored upon or permitted to remain outside
the Premises. Tenants shall not place anything or allow anything to be placed
near the glass of any window, door partition or wall which may appear unsightly
from outside the Premises. No loudspeaker or other device, system or apparatus
which can be heard outside the Premises shall be used in or at the Premises
without the written consent of Landlord. Tenant shall not commit or suffer to
be committed any waste in or upon the Premises. Tenant shall indemnify, defend
and hold Landlord harmless against any loss, expenses, damage, reasonable
attorney's fees, or liability arising out of failure of Tenant to comply with
any applicable law related to Tenant's use of the Premises. Tenant shall
comply with any covenant, condition or restriction ("CC&R's") affecting the
Premises. The provisions of this paragraph are for the benefit of Landlord
only and shall not be construed to be for the benefit of any tenant or occupant
of the Premises.
2. TERM*
A. The term of this Lease shall be for a period of FIVE (5) years (unless
sooner terminated as hereinafter provided) and, subject to Paragraphs 2B and 3,
shall commence on the 1st day of August, 1996 and end on the 31st day of July,
2001.
B. Possession of the Premises shall be deemed tendered and the term of the
Lease shall commence when the first of the following occurs:
(a) One day after a Certificate of Occupancy is granted by the proper
governmental agency, or, if the governmental agency having jurisdiction over
the area in which the Premises are situated does not issue certificates of
occupancy, then the same number of days after certification by Landlord's
architect or contractor that Landlord's construction work has been completed;
or
(b) Upon the occupancy of the Premises by any of Tenant's operating
personnel; or
(c) When the Tenant Improvements have been substantially completed for
Tenant's use and occupancy in accordance and compliance with Exhibit B of this
Lease Agreement; or
(d) As otherwise agreed in writing.
* It is agreed in the event said Lease commences on a date other than the
first day of the month the term of the Lease will be extended to account for
the number of days in the partial month. The Basic Rent during the resulting
partial month will be pro-rated (for the number of days in the partial month)
at the Basic Rent rate scheduled for the projected commencement date as shown
in Paragraph 39.
Initials: /s/
----------
----------
page 1 of 8
<PAGE> 2
3. POSSESSION If Landlord, for any reason whatsoever, cannot deliver
possession of said premises to Tenant at the commencement of the said term,
as herinbefore specified, this Lease shall not be void or voidable; no
obligation of Tenant shall be affected thereby; nor shall Landlord or
Landlord's agents be liable to Tenant for any loss or damage resulting
therefrom; but in that event the commencement and termination dates of the
Lease, and all other dates affected thereby shall be revised to conform to
the date of Landlord's delivery of possession, as specified in Paragraph 2B,
above. The above is, however, subject to the provision that the period of
delay of delivery of the Premises shall not exceed 60 days from the
commencement date herein (except those delays caused by Acts of God, strikes,
war, utilities, governmental bodies, weather, unavailable materials, and
delays beyond Landlord's control shall be excluded in calculating such
period) in which instance Tenant, at its option, may, by written notice to
Landlord, terminate this Lease.
4. RENT
A. Basic Rent. Tenant agrees to pay to Landlord, at such place as
Landlord may designate without deduction, effect, prior notice, or demand,
and Landlord agrees to accept as Basic Rent for the leased Premises the total
sum of THREE MILLION FOUR HUNDRED EIGHTY THREE THOUSAND SIX HUNDRED FORTY
EIGHT AND NO/100 -----------------DOLLARS ($3,483,648.00-------------- ) in
lawful money of the United States of America, payable as follows:
See Paragraph 30 for Basic Rent Schedule
B. Time for Payment. Full monthly rent is due in advance on the first day
of each calendar month. In the event that the term of this Lease commences on
a date other than the first day of a calendar month, on the date of
commencement of the term hereof Tenant shall pay to Landlord as rent for the
period from such date of commencement to the first day of the next succeeding
calendar month that proportion of the monthly rent hereunder which the number
of days between such date of commencement and the first day of the next
succeeding calendar month bears to thirty (30). In the event that the term of
this Lease for any reason ends on a date other tan the last day of a calendar
month, on the first day of the last calendar month of the term hereof Tenant
shall pay to Landlord as rent for the period from said first day of said last
calendar month to and including the last day of the term hereof that proportion
of the monthly rent hereunder which the number of days between said first day
of said last calendar month and the last day of the term hereof bears to thirty
(30).
C. Late Charge. Notwithstanding any other provision of this Lease, if
Tenant is in default in the payment of rental as set forth in this Paragraph 4
when due, or any part thereof, Tenant agrees to pay Landlord, in addition to
the delinquent rental due, a late charge for each rental payment in default ten
(10) days . Said late charge shall equal ten percent (10%) of each rental
payment so in default.
D. Additional Rent. Beginning with the commencement date of the term of
this Lease, Tenant shall pay to Landlord or to Landlord's designated agent in
addition to the Basic Rent and as Additional Rent the following:
(a) All Taxes relating to the Premises as set forth in Paragraph 8, and
(b) All insurance premiums relating to the Premises, as set forth in
Paragraph 12, and
(c) All charges, costs and expenses, which Tenant is required to pay
hereunder, together with all interest and penalties, costs and expenses
including reasonable attorneys' fees and legal expenses, that may accrue thereto
in the event of Tenant's failure to pay such amounts, and all damages,
reasonable costs and expenses which Landlord may incur by reason of default of
Tenant or failure on Tenant's part to comply with the terms of this Lease. In
the event of nonpayment by Tenant of Additional Rent, Landlord shall have all
the rights and remedies with respect thereto as Landlord has for nonpayment of
rent.
The Additional Rent due hereunder shall be paid to landlord or Landlord's
agent (I) within five days for taxes and insurance and within thirty (30) days
for all other Additional Rent items after presentation of invoice from Landlord
or Landlord's agent setting forth such Additional Rent and/or (II) at the option
of Landlord, Tenant shall pay to Landlord monthly, in advance, Tenant's prorate
share of an amount estimated by Landlord to be Landlord's approximate average
monthly expenditure for such Additional Rent Items, which estimated amount shall
be reconciled within 120 days of the end of each calendar year, or more
frequently if landlord elects to do so at Landlord's sole and absolute
discretion, as compared to Landlord's actual expenditure for said Additional
Rent items, with Tenant paying to Landlord, upon demand, any amount of actual
expenses expended by Landlord in excess of said estimated amount, or Landlord
refunding to tenant (providing Tenant is not in default in the performance of
any of the terms, covenants and conditions of this Lease) any amount of
estimated payments made by Tenant in excess of Landlord's actual expenditures
for said Additional Rent items. Within thirty (30) days after receipt of
Landlord's reconciliation, Tenant shall have the right, at Tenant's sole
expense, to audit, at a mutually convenient time at Landlord's office,
Landlord's records relating to the foregoing expenses. Such audit must be
conducted by Tenant or an independent nationally recognized accounting firm
that is not being compensated by Tenant or other third party on a contingency
fee basis. If such audit reveals that Landlord has overcharged Tenant, the
amount overcharged shall be credited to Tenant's account within thirty (30)
days after the audit is concluded.
The respective obligations of Landlord and Tenant under this paragraph shall
survive the expiration or other termination of the term of this Lease, and if
the term hereof shall expire or shall otherwise terminate on a day other than
the last day of a calendar year, the actual Additional Rent incurred for the
calendar year in which the term hereof expires or otherwise terminates shall be
determined and settled on the basis of the statement of actual Additional Rent
for such calendar year and shall be prorated in the proportion which the number
of days in such calendar year preceding such expiration or termination bears to
365.
E. Fixed Management Fee. Beginning with the Commencement Date of the Term
of this Lease, Tenant shall pay to Landlord, in addition to the Basic Rent and
Additional Rent, a fixed monthly management fee equal to 1% of the Basic Rent
due for each month during the Lease Term ("Management Fee").
F. Place of Payment of Rent and Additional Rent. All Basic Rent hereunder
and all payments hereunder for Additional Rent shall be paid to Landlord at the
office of Landlord at Peary/Arrillaga, File 1504, Box 6000, San Francisco, CA
94160 or to such other person or to such other place as Landlord may from time
to time designate in writing.
G. Security Deposit. Concurrently with Tenant's execution of this Lease,
and subject to Paragraph 54, Tenant shall deposit with Landlord the sum of ONE
HUNDRED TWENTY FOUR THOUSAND FOUR HUNDRED SIXTEEN AND NO/100 ---------------
DOLLARS ($124,416.00 --------------). Said sum shall be held by Landlord as a
Security Deposit for the faithful performance by Tenant of all the terms,
covenants, and conditions of this Lease to be kept and performed by Tenant
during the term hereof. If Tenant defaults with respect to any provision of
this Lease, including, but not limited to, the provisions relating to the
payment of rent and any of the monetary sums due herewith, landlord may (but
shall not be required to) use, apply or retain all or any part of this Security
Deposit for the payment of any other amount which Landlord may spend by reason
of Tenant's default or to compensate Landlord for
Initials: /s/
-----------
page 2 of 8 Initials: /s/
-----------
<PAGE> 3
any other loss or damage which Landlord may suffer by reason of Tenant's
default. If any portion of said Deposit is so used or applied, Tenant shall,
within ten (10) days after written demand therefor, deposit cash with
Landlord in the amount sufficient to restore the Security Deposit to its
original amount. Tenant's failure to do so shall be a material breach of this
Lease. Landlord shall not be required to keep this Security Deposit separate
from its general funds, and Tenant shall not be entitled to interest on such
Deposit. If Tenant fully and faithfully performs every provision of this Lease
to be performed by it, the Security Deposit or any balance thereof shall be
returned to Tenant (or at Landlord's option, to the last assignee of Tenant's
interest hereunder) at the expiration of the Lease term and after Tenant has
vacated the Premises. In the event of termination of Landlord's interest in
this Lease, Landlord shall transfer said Deposit to Landlord's successor in
interest whereupon Tenant agrees to release Landlord from liability for the
return of such Deposit or the accounting therefor. Subject to Paragraphs 51
and 52 by _______ See Paragraph 54
8. ACCEPTANCE AND SURRENDER OF PREMISES By entry hereunder, Tenant accepts
the Premises as being in good and sanitary order, condition and repair and
accepts the building and improvements included in the Premises in their present
condition and without representation or warranty by landlord as to the condition
of such building or as to the use or occupancy which may be made thereof. Any
exceptions to the foregoing must be by written agreement executed by Landlord
and Tenant. Tenant agrees on the last day of the Lease term, or on the sooner
termination of this Lease, to surrender the Premises promptly and peaceably to
Landlord in good condition and repair (damage by Acts of God, fire, normal wear
and tear excepted), with all interior walls painted, or cleaned so that they
appear freshly painted, and repaired and replaced, if damaged; all floors
cleaned and waxed; all carpets cleaned and shampooed; all broken, marred or
nonconforming acoustical ceiling tiles replaced; all windows washed; the
airconditioning and heating systems serviced by a reputable and licensed service
firm and in good operating condition and repair; the plumbing and electrical
systems and lighting in good order and repair, including replacement of any
burned out or broken light bulbs or ballasts; the lawn and shrubs in good
condition including the replacement of any dead or damaged plantings; the
sidewalk, driveways and parking areas in good order, condition and repair;
together with all alterations, additions, and improvements which may have been
made in, to, or on the Premises (except moveable trade fixtures installed at the
expense of Tenant) except that Tenant shall ascertain from Landlord within
thirty (30) days before the end of the term of this Lease whether Landlord
desires to have the Premises or any part of parts thereof restored to their
condition and configurations when the Premises were delivered to Tenant and if
Landlord shall so desire, then Tenant shall restore said Premises or such part
or parts thereof before the end of this Lease at Tenant's sole cost and expense.
Tenant, on or before the end of the term or sooner termination of this Lease,
shall remove all of Tenant's personal property and trade fixtures from the
Premises, and all property not so removed on or before the end of the term or
sooner termination of this Lease shall be deemed abandoned by Tenant and title
to same shall thereupon pass to Landlord without compensation to Tenant.
Landlord may, upon termination of this Lease, remove all moveable furniture and
equipment so abandoned by Tenant, at Tenant's sole cost, and repair any damage
caused by such removal at Tenant's sole cost. If the Premises do not
surrendered at the end of the term or sooner termination of this Lease, Tenant
shall indemnify Landlord against loss or liability resulting from the delay by
Tenant in so surrendering the Premises including, without limitation, any claims
made by any succeeding tenant founded on such delay. Nothing contained herein
shall be construed as an extension of the term hereof or as a consent of
Landlord to any holding over by Tenant. The voluntary or other surrender of
this Lease or the Premises by Tenant or a mutual cancellation of this Lease
shall not work as a merger and, at the option of Landlord, shall either
terminate all or any existing subleases or subtenancies or operate as an
assignment to Landlord of all or any such subleases or subtenancies.
6. ALTERATIONS AND ADDITIONS Tenant shall not make, or suffer to be made, any
alteration or addition to the Premises, or any part thereof, without the
written consent of Landlord (which written consent will specify whether
Landlord shall require removal of said alterations and/or additions), first had
and obtained by Tenant (such consent not to be unreasonably withheld), but at
the cost of Tenant, and any addition to, or alteration of, the Premises, except
moveable furniture and trade fixtures, shall at once become a part of the
Premises and belong to Landlord. Landlord reserves the right to approve all
contractors and mechanics proposed by Tenant to make such alterations and
additions. Tenant shall retain title to all moveable furniture and trade
fixtures placed in the Premises. All heating, lighting, electrical,
airconditioning, floor to ceiling partitioning, drapery, carpeting, and floor
installations made by Tenant, together with all property that has become an
integral part of the Premises, shall not be deemed trade fixtures. Tenant
agrees that it will not proceed to make such alteration or additions, without
having obtained consent from Landlord to do so, and until five (5) days from
the receipt of such consent, in order that Landlord may post appropriate
notices to avoid any liability to contractors or material suppliers for payment
for Tenant's improvements. Tenant will at all times permit such notices to be
posted and to remain posted until the completion of work. Tenant shall, if
required by Landlord, secure at Tenant's own cost and expense, a completion and
lien indemnity bond, satisfactory to Landlord, for such work. Tenant further
covenants and agrees that any mechanic's lien filed against the Premises for
work claimed to have been done for, or materials claimed to have been
furnished to Tenant, will be discharged by Tenant, by bond or otherwise, within
ten (10) days after the filing thereof, at the cost and expense of Tenant. Any
exceptions to the forgoing must be made in writing and executed by both
Landlord and Tenant.
Subject to Paragraph 55
7. TENANT MAINTENANCE I Tenant shall, at its sole cost and expense, keep and
maintain the Premises (including appurtenances) and every part thereof in a high
standard of maintenance and repair, or replacement, and in good and sanitary
condition. Tenant's maintenance and repair responsibilities herein referred to
include, but are not limited to, janitorization, all windows (interior and
exterior), window frames, plate glass and glazing (destroyed by accident or act
of third parties), truck doors, plumbing systems (such as water and drain lines,
sinks, toilets, faucets, drains, showers and water fountains), electrical
systems (such as panels, conduits, outlets, lighting fixtures, lamps, bulbs,
tubes and ballasts), heating and airconditioning systems (such as compressors,
fans, air handlers, ducts, mixing boxes, thermostats, time clocks, boilers,
heaters, supply and return grills), and exterior surfaces of the building,
storefronts, roofs, downspouts, all interior improvements within the premises
including but not limited to wall coverings, window coverings, carpet, floor
coerings, partitioning, ceilings, doors (both interior and exterior), including
closing mechanisms, latches, locks, skylights (if any), automatic fire
extinguishing systems, and elevators and all other interior improvements of any
nature whatsoever, and all exterior improvements including but not limited to
landscaping, sidewalks, driveways, parking lots including stripping and sealing,
sprinkler systems, lighting, ponds, fountains, waterways, and drains. Tenant
agrees to provide carpet shields under all rolling chairs or to otherwise be
responsible for wear and tear of the carpet caused by such rolling chairs if
such wear and tear exceeds that caused by normal foot traffic in surrounding
areas. Areas of excessive wear shall be replaced at Tenant's sole expense upon
Lease termination. Tenant hereby waives all rights under, and benefits of,
Subsection 1 of Section 1932 and Section 1941 and 1942 of the California Civil
Code and under any similar law, stature or ordinance now or hereafter in effect.
In the event any of the above maintenance responsibilities apply to any other
tenant(s) of Landlord where there is common usage with other tenant(s), such
maintenance responsibilities and changes shall be allocated to the leased
Premises by square footage or other equitable basis as calculated and determined
by Landlord.
8. UTILITIES Tenant shall pay promptly, as the same become due, all charges
for water, gas, electricity, telephone, telex and other electronic
communication service, sewer service, waste pick-up and any other utilities,
materials of services furnished directly to or used by Tenant on or about the
Premises during the term of this Lease, including, without limitation, any
temporary or permanent utility surcharge or other exactions whether or not
hereinafter imposed. In the event the above charges apply to any other
tenant(s) of Landlord where there is common usage with other tenant(s), such
charges shall be allocated to the leased Premises by square footage or other
equitable basis as calculated and determined by Landlord.
Landlord shall not be liable for and Tenant shall not be entitled to any
abatement or reduction of rent by reason of any interruption or failure of
utility services to the Premises when such interruptions or failure is caused by
accident, breakage, repair, strikes, lockouts, or other labor disturbances
or labor disputes of any nature, or by any other cause, similar or dissimilar,
beyond the reasonable control of Landlord.
9. TAXES
A. As Additional Rent and in accordance with Paragraph 4D of this Lease,
Tenant shall pay to Landlord, or if Landlord so direct, directly to the Tax
collector, all Real Property Taxes relating to the Premises. In the event the
Premises leased hereunder consist of only a portion of the entire tax parcel,
Tenant shall pay to Landlord Tenant's proportionate share of such real estate
taxes allocated to the leased Premises by square footage or other reasonable
basis calculated and determined by Landlord. If the tax billing pertains
100% to the leased Premises, and Landlord chooses to have Tenant pay said real
estate taxes directly to the Tax Collector, then in such event it shall be the
responsibility of Tenant to obtain the tax and assessment bills and pay, prior
to delinquency, the applicable real property taxes and assessments pertaining
to the leased Premises, and failure to receive a bill for taxes and/or
assessments shall not provide a basis for cancellations or nonresponsibility
for payment of penalties for nonpayment or late payment by Tenant. The term
"Real Property Taxes", as used herein, shall mean (i) all taxes, assessments,
levies and other charges of any kind or nature whatsoever, general and special,
foreseen and unforeseen (including all installments of principal and interest
required to pay any general or special assessments for public improvements and
any increases resulting from reassessments caused by any change in ownership of
the Premises) now or hereafter imposed by any governmental or
quasi-governmental authority or special district having the direct or indirect
power to tax or levy assessments, which are levied or assessed against, or with
respect to the value, occupancy of use of, all or any portion of the Premises
(as now constructed or as may at any time hereafter be constructed, altered, or
otherwise changed) or Landlord's interest therein; any improvements located
within the Premises (regardless of ownership); the fixtures, equipment and
other property of Landlord, real or personal, that are an integral part of and
located in the Premises; or parking areas, public utilities, or energy within
the Premises; (ii) all charges, levies or fees imposed by reason of
environmental regulation or other governmental control of the Premises; and
(iii) all costs and fees (including
Initials:____________
page 3 of 5 Initials:____________
<PAGE> 4
reasonable attorneys' fees incurred by Landlord in reasonably contesting any
Real Property Tax and in negotiating with public authorities as to any Real
Property Tax. If at any time during the term of this Lease the taxation or
assessment of the Premises prevailing as of the commencement date of this Lease
shall be altered so that in lieu of or in addition to any Real Property Tax
described above there shall be levied, assessed or imposed (whether by reason
of a change in the method of taxation or assessment, creation of a new tax or
charge, or any other cause) an alternate or additional tax of charge (I) on the
value, use or occupancy of the Premises or Landlord's interest therein or (II)
on or measured by the gross receipts, income or rentals from the Premises, on
Landlord's business of leasing the Premises, or computed in any manner with
respect to the operation of the Premises, then any such tax or charge, however
designated, shall be included within the meaning of the term "Real Property
Taxes" for purposes of this Lease. If any Real Property Tax is based upon
property or rents unrelated to the Premises, then only that part of such Real
Property Tax that is fairly allocable to the Premises shall be included within
the meaning of the term "Real Property Taxes." Notwithstanding the foregoing,
the term "Real Property Tax" shall not include estate, inheritance, gift or
franchise taxes of Landlord or the federal or state net income tax imposed on
Landlord's income from all sources. See Paragraph 53
B. Taxes on Tenant's Property Tenant shall be liable for and shall pay ten
days before delinquency, taxes levied against any personal property or trade
fixtures placed by Tenant in or about the Premises. If any such taxes on
Tenant's personal property or trade fixtures are levied against Landlord or
Landlord's property or if the assessed value of the Premises is increased by
the inclusion therein of a value placed upon such personal property or trade
fixtures of Tenant and if Landlord, after written notice to Tenant, pays the
taxes based on such increased assessment, which Landlord shall have the right
to do regardless of the validity thereof, but only under proper protest if
requested by Tenant, Tenant shall upon demand, as the case may be, repay to
Landlord the taxes so levied against Landlord, or the proportion of such taxes
resulting from such increase in the assessment: provided that in any such event
Tenant shall have the right, in the name of Landlord and with Landlord's full
cooperation, to bring suit in any court of competent jurisdiction to recover
the amount of such taxes so paid under protest, and any amount so recovered
shall belong to Tenant.
10. LIABILITY INSURANCE Tenant, at Tenant's expense, agrees to keep in force
during the term of this Lease a policy of commercial general insurance with
combined single limit coverage of not less than Two Million Dollars ($2,000,000)
for bodily injury and property damage occurring in, on or about the Premises,
including parking and landscape areas. Such insurance shall be primary and
noncontributory as respects any insurance carried by Landlord. The policy of
policies effecting such insurance shall name Landlord as additional insureds,
and shall insure any liability of Landlord, contingent or otherwise, as respects
acts or omissions of Tenant, its agents, employees or invitees or otherwise by
any conduct or transactions of any of said persons in or about or concerning the
Premises, including any failure of Tenant to observe or perform any of its
obligations hereunder: shall be issued by an insurance company admitted to
transact business in the State of California; and shall provide that the
insurance effected thereby shall not be canceled, except upon thirty (30) days'
prior written notice to Landlord. A certificate of insurance said policy shall
be delivered to Landlord, if, during the term of this Lease, in the considered
opinion of Landlord's Lender, insurance advisor, or counsel, the amount of
insurance described in this Paragraph 10 is not adequate. Tenant agrees to
increase said coverage to such reasonable amount as Landlord's Lender,
insurance advisor, or counsel shall deem adequate.
11. TENANT'S PERSONAL PROPERTY INSURANCE AND WORKMAN'S COMPENSATION INSURANCE
Tenant shall maintain a policy or policies of fire and property damage
insurance in "all risk" form with a sprinkler leakage endorsement insuring the
personal property, inventory, trade fixtures, and leasehold improvements within
the leased Premises for the full replacement value thereof. The proceeds from
any of such policies shall be used for the repair or replacement of such items
so insured.
Tenant shall also maintain a policy or policies of workman's compensation
insurance and any other employee benefit insurance sufficient to comply with
all laws.
12. PROPERTY INSURANCE Landlord shall purchase and keep in force, and as
Additional Rent and in accordance with Paragraph 4D of this Lease, Tenant shall
pay to Landlord (or Landlord's agent if so directed by Landlord) the deductible
on insurance claims and Tenant's proportionate share (allocated to the leased
Premises by square footage or other equitable basis as calculated and
determined by Landlord) of the cost of, policy or policies of insurance
covering loss or damage to the Premises (excluding routine maintenance and
repairs and incidental damage or destruction caused by accidents or vandalism
for which Tenant is responsible under Paragraph 7) in the amount of the full
replacement value thereof, providing protection against those perils included
within the classification of "all risks" insurance and flood and/or earthquake
insurance, if available, plus a policy of rental income insurance in the
amount of one hundred (100%) percent of twelve (12) months Basic Rent, plus
sums paid as Additional Rent. If such insurance cost is increased due to
Tenant's use of the Premises, Tenant agrees to pay to Landlord the full cost of
such increase. Tenant shall have no interest in nor any right to the proceeds
of any insurance procured by Landlord for the Premises.
Landlord and Tenant do each hereby respectively release the other, to the
extent of insurance coverage of the releasing party, from any liability for
loss or damage caused by fire or any of the extended coverage casualties
included in the releasing party's insurance policies, irrespective of the cause
of such fire or casualty; provided, however, that if the insurance policy of
either releasing party prohibits such waiver, then this waiver shall not take
effect until consent to such waiver is obtained, if such waiver is so
prohibited, the insured party affected shall promptly notify the other party
thereof.
13. INDEMNIFICATION Landlord shall not be liable to Tenant and Tenant hereby
waives all claims against Landlord for any injury to or death of any person or
damage to or destruction of property in or about the Premises by or from any
cause whatsoever, including, without limitation, gas, fire, oil, electricity or
leakage of any character from the roof, walls, basement or other portion of the
Premises but excluding, however, the willful misconduct or the negligence of
Landlord, its agents, servants, employees, invitees, or contractors of which
negligence Landlord has knowledge and reasonable time to correct. Except as to
injury to persons or damage to property to the extent arising from the willful
misconduct or the negligence of Landlord, its agents, servants, employees,
invitees, or contractors, Tenant shall hold Landlord harmless from and defend
Landlord against any and all expenses, including reasonable attorneys' fees, in
connection therewith, arising out of any injury to or death of any person or
damage to or destruction of property occurring in, on or about the Premises, or
any part thereof, from any cause whatsoever.
14. COMPLIANCE Tenant, at its sole cost and expense, shall promptly comply
with all laws, statutes, ordinances and governmental rules, regulations or
requirements now or hereafter in effect; with the requirements of any board of
fire underwriters or other similar body now or hereafter constituted; and with
any direction of occupancy certificate issued pursuant to law by any public
officer; provided, however, that no such failure shall be deemed a breach of
the admission of Tenant in any action against Tenant, whether Landlord be a
party thereto or not, that Tenant has violated any such law, statute, ordinance
or cost and expense, comply with any and all reasonable requirements pertaining
to said Premises, of any insurance organization or company, necessary for the
maintenance of reasonable fire and public liability insurance covering
requirements pertaining to said Premises, of any insurance organization or
company, necessary for the maintenance of reasonable fire and public liability
insurance covering the Premises.
15. LIENS Tenant shall keep the Premises free from any liens arising out of
any work performed, materials furnished or obligation incurred by Tenant. In
the event that Tenant shall not, within ten (10) days following the imposition
of such lien, cause the same to be released of record. Landlord shall have, in
addition to all other remedies provided herein and by law, the right, but no
obligation, to cause the same to be released by such means as it shall deem
proper, including payment of the claim giving rise to such lien. All sums paid
by Landlord for such purpose, and all expenses incurred by it in connection
therewith shall be payable to Landlord by Tenant on demand with interest at the
prime rate of interest as quoted by the Bank of America.
16. ASSIGNMENT AND SUBLETTING Tenant shall not assign, transfer, or
hypothecate the leasehold estate under this Lease, or any interest therein, and
shall not sublet the Premises, or any part thereof, or any right or privilege
appurtenant thereto, or suffer any other person or entity to occupy or use the
Premises; or any portion thereof, without, in each case, the prior written
consent of Landlord which consent will not be unreasonably withheld. As a
condition for granting this consent to any assignment, transfer, or
subletting, Landlord may require that Tenant agrees to pay to Landlord, as
additional rent, all rents or additional consideration received by Tenant from
its assignee, transferees, or subtenants in excess of the rent payable by
Tenant to Landlord, hereunder Tenant shall by fifteen (15) days written notice,
advise Landlord of its intent to assign or transfer Tenant's interest in the
Lease or sublet the Premises or any portion thereof for any part of the term
hereof, within fifteen (15) days after receipt of said written notice.
Landlord may, in its sole discretion, elect to terminate this Lease as to the
portion of the Premises (provided such portion equals 25% or more of the
Premises) described in Tenant's notice on the date specified in Tenant's notice
by giving written notice of such election to terminate. If no such notice to
terminate is given to Tenant within said fifteen(15) day period, Tenant may
proceed to locate an acceptable sublessee, assignee, or other transferee for
presentment to Landlord for Landlord's approval, all in accordance with the
terms, covenants, and conditions of this paragraph 16. If Tenant intends to
sublet twenty five percent (25%) or more of the Premises and Landlord elects to
terminate this Lease, this Lease shall be terminated on the date specified in
Tenant's notice. If, however, this Lease shall terminate pursuant to the
foregoing with respect to less than all the Premises, the rent, as defined and
reserved hereinabove shall be adjusted on a pro rata basis to the number of
square feet retained by Tenant, and the Lease as so amended shall continue in
full force and effect. In the event Tenant is allowed to assign, transfer, or
sublet the whole or any part of the Premises, with the prior written
page 4 of 8 Initials: /s/
-----------
Initials: /s/
-----------
<PAGE> 5
consent of Landlord, no assignee, transferee or subtenant shall assign or
transfer this Lease, either in whole or in part, or sublet the whole or any part
of the Premises without also having obtained the prior written consent of
Landlord, which consent shall not be unreasonably withheld. A consent of
Landlord to one assignment, transfer, hypothecation, subletting, occupation or
use by any other person shall not release Tenant from any of Tenant's
obligations hereunder or be deemed to be a consent to any subsequent similar or
dissimilar assignment, transfer, hypothecation, subletting, occupation or use by
any other person. Any such assignment, transfer, hypothecation, subletting,
occupation or use without such consent shall be void and shall constitute a
breach of this Lease by Tenant and shall, at the option of Landlord exercised by
written notice to Tenant, terminate this Lease. The leasehold estate under this
Lease shall not, nor shall any interest therein, be assignable for any purpose
by the operation of law without the written consent of Landlord. As a condition
to its consent, Landlord may require Tenant to pay all expenses in connection
with the assignment, and Landlord may require Tenant's assignee or transferee
(or other assignees or transferees) to assume in writing all of the obligations
under this Lease and for Tenant to remain liable to Landlord under the Lease.
SEE PARAGRAPH 46.
17. SUBORDINATION AND MORTGAGES In the event Landlord's title or leasehold
interest is now or hereafter encumbered by a deed of trust, upon the interest
of Landlord in the land and buildings in which the demised Premises are
located, to secure a loan from a lender (hereinafter referred to a "Lender")
to Landlord, Tenant shall, at the request of Landlord or Lender, execute in
writing an agreement subordinating its right under this Lease to the lien of
such deed of trust, or, if so requested, agreeing that the lien of Lender's
deed of trust shall be or remain subject and subordinate to the rights of
Tenant under this Lease. Notwithstanding any such subordination, Tenant's
possession under this Lease shall not be disturbed if Tenant is not in default
and so long as Tenant shall pay all rent and observe and perform all of the
provisions set forth in this Lease.
18. ENTRY BY LANDLORD Landlord reserves, and shall at all reasonable times
after at lease 24 hours notice (except in emergencies) have the right to enter
the Premises to inspect them; to perform any services to be provided by
Landlord hereunder, to make repairs or provide any services to a contiguous
tenant(s); to submit the Premises to prospective purchasers, mortgagors or
tenants; to post notices of nonresponsibility; and to alter, improve or repair
the Premises or other parts of the building, all without abatement of rent,
and may erect scaffolding and other necessary structures in or through the
Premises where reasonably required by the character of the work to be
performed; provided, however that the business of Tenant shall be interfered
with to the least extent that is reasonably practical. Any entry to the
Premises by Landlord for the purposes provided for herein shall not under any
circumstances be construed or deemed to be a forcible or unlawful entry into
or a detainer of the Premises or an eviction, actual or constructive, of
Tenant from the Premises or any portion thereof.
19. BANKRUPTCY AND DEFAULT The commencement of a bankruptcy action or
liquidation action or reorganization action or insolvency action or an
assignment of or by Tenant for the benefit of creditors, or any similar action
undertaken by Tenant, or the insolvency of Tenant, shall, at Landlord's
option, constitute a breach of this Lease by Tenant. If the trustee or
receiver appointed to serve during a bankruptcy, liquidation, reorganization,
insolvency or similar action elects to reject Tenant's unexpired Lease, the
trustee or receiver shall notify Landlord in writing of its election within
thirty (30) days after an order for relief in a liquidation action or within
thirty (30) days after the commencement of any action.
Within thirty (30) days after court approval of the assumption of this
Lease, the trustee or receiver shall cure (or provide adequate assurance to
the reasonable satisfaction of Landlord that the trustee or receiver shall
cure) any and all previous defaults under the unexpired Lease and shall
compensate Landlord for all actual pecuniary loss and shall provide adequate
assurance of future performance under said Lease to the reasonable
satisfaction of Landlord. Adequate assurance of future performance, as used
herein, includes, but shall not be limited to: (i) assurance of source and
payment of rent, and other consideration due under this Lease; (ii) assurance
that the assumption or assignment of this Lease will not breach substantially
any provision, such as radius, location, use, or exclusivity provision, in any
agreement relating to the above described Premises.
Nothing contained in this section shall affect the existing right of
Landlord to refuse to accept an assignment upon commencement of or in
connection with a bankruptcy, liquidation, reorganization or insolvency action
or an assignment of Tenant for the benefit of creditors or other similar act.
Nothing contained in this Lease shall be construed as giving or granting an
equity in the demised Premises to Tenant, in no event shall the leasehold
estate under this Lease, or any interest therein, be assigned by voluntary or
involuntary bankruptcy proceeding without the prior written consent of
Landlord. In no event shall this Lessee or any rights or privileges hereunder
be an asset of Tenant under any bankruptcy, insolvency or reorganization
proceedings.
The failure to perform or honor any covenant, condition or representation
made under this Lease shall constitute a default hereunder by Tenant upon
expiration of the apportionate grace period hereinafter provided. Tenant
shall have a period of five (5) days from the date of written notice from
Landlord within which to cure any default in the payment of rental or
adjustment thereto. Tenant shall have a period of thirty (30) days from the
date of written notice from Landlord within which to cure any other default
under this Lease, provided, however, that if the nature of Tenant's failure is
such that more than thirty (30) days is reasonably required to cure the same,
Tenant shall not be in default so long as Tenant commences performance within
such thirty (30) day period and thereafter prosecutes the same to completion.
Upon an uncured default of this lease by Tenant, Landlord shall have the
following rights and remedies in addition to any other rights or remedies
available to Landlord at law or in equity:
(a) The rights and remedies provided for by California Civil Code Section
1951.2, including but not limited to, recovery of the worth at the time of
award of the amount by which the unpaid rent for the balance of the term
after the time of award exceeds the amount of rental loss for the same
period that Tenant proves could be reasonably avoided, as computed pursuant
to subsection (b) of said Section 1951.2. Any proof by Tenant under
subparagraphs (2) and (3) of Section 1951.2 of the California Civil Code of
the amount of rental loss that could be reasonably avoided shall be made in
the following manner: Landlord and Tenant shall each select a licensed real
estate broker in the business of renting property of the same type and use
as the Premises and in the same geographic vicinity. Such two real estate
brokers shall select a third licensed real estate broker, and the three
licensed real estate brokers so selected shall determine the amount of the
rental loss that could be reasonably avoided from the balance of the term of
this Lease after the time of the award. The decision of the majority of
said licensed real estate brokers shall be final and binding upon the
parties hereto.
(b) The rights and remedies provided by California Civil Code Section
which allows Landlord to continue the Lease in effect and to enforce all of
its rights and remedies under this Lease, including the right to recover
rent as it becomes due, for so long as Landlord does not terminate Tenant's
right to possession; acts of maintenance or presentation, efforts to relet
the Premises, or the appointment of a receiver upon Landlord's initiative to
protect its interest under this Lease shall not constitute a termination of
Tenant's right of possession.
(c) The right to terminate this Lease by giving to Tenant in accordance
with applicable law.
(d) To the extent permitted by law, the right and power to enter the
Premises and remove therefrom all persons and property, to store such
property in a public warehouse or elsewhere at the cost and for the account
of Tenant, and to sell such property and apply such proceeds therefrom
pursuant to applicable California law. Landlord may, from time to time,
sublet the Premises or any part thereof for such term or terms (which may
extend beyond the term of this Lease) and at such rent and such other terms
as Landlord in its reasonable sole discretion may deem advisable, with the
right to make alterations and repairs to the Premises. Upon each
subletting, (i) Tenant shall be immediately liable to pay Landlord, in
addition to indebtedness other than rent due hereunder, the reasonable cost
of such subletting, including, but not limited to, reasonable attorney's
fees, and any real estate commissions actually paid, and the cost of such
reasonable alterations and repairs incurred by Landlord and the amount, if
any, by which the rent hereunder for the period of such subletting (to the
extent such period does not exceed the term hereof) exceeds the amount to be
paid as rent for the Premises for such period or (ii) at the option of
Landlord, rents received from such subletting shall be applied first to
payment of indebtedness other than rent due hereunder from Tenant to
Landlord; second, to the payment of any costs of such subletting and of such
alterations and repairs; third, to payment of rent due and unpaid hereunder;
and the residue, if any, shall be held by Landlord and applied in payment of
future rent as the same becomes due hereunder. If Tenant has been credited
with any rent to be received by such subletting under option (i) and such
rent shall not be promptly paid to Landlord by the subtenant(s), or if such
rentals received from such subletting under option (ii) during any month be
less than that to be paid during that month by Tenant hereunder, Tenant
shall pay any such deficiency to Landlord. Such deficiency shall be
calculated and paid monthly. No taking possession of the Premises by
Landlord shall be construed as an election on its part to terminate this
Lease unless a written notice of such intention be given to Tenant.
Notwithstanding any such subletting without termination, Landlord may at any
time hereafter elect to terminate this Lease for such previous breach.
(e) The right to have a receiver appointed for Tenant upon application by
landlord, to take possession of the Premises and to apply any rental
collected from the Premises and to exercise all other rights and remedies
granted to Landlord pursuant to subparagraph (d) above.
20. ABANDONMENT Tenant shall not vacate or abandon the Premises at any time
during the term of this Lease (except that Tenant may vacate so long as it
pays rent, provides an on-site security guard during normal business hours
from Monday through Friday, and otherwise performs its obligations hereunder)
and if Tenant shall abandon, vacate or surrender said Premises, or be
dispossessed by the process or law, or otherwise, any personal property
belonging to Tenant and left on the Premises shall be deemed to be abandoned,
at the option of Landlord, except such property as may be mortgaged to
Landlord.
21. DESTRUCTION In the event the Premise are destroyed in whole or in part
from any cause, except for routine maintenance and repairs and incidental
Initials: /s/
-----------
-----------
<PAGE> 6
damage and destruction caused from vandalism and accidents for which Tenant is
responsible under Paragraph 7, Landlord shall:
(a) Rebuild or restore the Premises to their condition prior to the
damage or destruction, or
(b) Terminate this Lease. (providing that the Premises is damaged to
the extend of 33 1/3% of the replacement cost)
If Landlord does not give Tenant notice in writing within thirty (30) days from
the destruction of the Premises of the election to either rebuild and restore
them, or to terminate this Lease, Landlord shall be deemed to have elected to
rebuild or restore them, in which event Landlord agrees, at its expense,
promptly rebuild or restore the Premises to their condition prior to the damage
or destruction. Tenant shall be entitled to a reduction in rent while such
repair is being made in the proportion that the area of the Premises rendered
untenantable by such damage bears to the total area of the Premises. If
Landlord does not complete the rebuilding or restoration within one hundred
eighty (180) days following the date of destruction (such period of time to be
extended for delays caused by the fault or neglect of Tenant or because of Acts
of God, acts of Public Agencies, labor disputes, strikes, fires, freight
embargoes, rainy or stormy weather, inability to obtain materials, supplies or
fuels, acts of contractor or subcontractors, or delay of the contractors or
subcontractors due to such causes or other contingencies beyond the control of
landlord), then Tenant shall have the right to terminate this Lease by giving
fifteen (15) days prior written notice to landlord. Notwithstanding anything
herein to the contrary, landlord's obligation to rebuild or restore shall be
limited to the building and interior improvements constructed by landlord as
they existed as of the commencement date of the Lease and shall not include
restoration of Tenant's trade fixtures, equipment, merchandise, or any
improvements, alterations or additions made by Tenant to the Premises, which
tenant shall forthwith replace or fully repair at Tenant's sole cost and
expense provided this lease is not cancelled according to the provisions above.
Unless this Lease is terminated pursuant to the foregoing provisions, this
Lease shall remain in full force and effect. Tenant hereby expressly waives
the provisions of Section 1932, Subdivision 2, in Section 1933, Subdivision 4
of the California Civil Code.
In the event that the building in which the Premises are situated is damaged
or destroyed to the extent of not less than 33 1/3% of the replacement cost
thereof, Landlord may elect to terminate this Lease, whether the Premises be
injured or not.
22. EMINENT DOMAIN If all or any part of the Premises shall be taken by any
public or quasi-public authority under the power of eminent domain or conveyance
in lieu thereof, this Lease shall terminate as to any portion of the Premises
so taken or conveyed on the date when title vests in the condemnor, and
Landlord shall be entitled to any and all payment, income, rent, award, or any
interest therein whatsoever which may be paid or made in connection with such
taking or conveyance, and Tenant shall have no claim against Landlord or
otherwise for the value of any unexpired term of this Lease. Notwithstanding
the foregoing paragraph, any compensation specifically awarded Tenant for loss
of business, Tenant's personal property, moving cost or loss of goodwill, shall
be and remain the property of Tenant.
If any action or proceeding is commenced for such taking of the Premises or
any part thereof, or if Landlord is advised in writing by any entity or body
having the right or power of condemnation of its intention to condemn the
premises or any portion thereof, then Landlord shall have the right to
terminate this Lease by giving Tenant written notice thereof within sixty (60)
days of the date of receipt of said written advice, or commencement of said
action or proceeding, or taking conveyance, with termination shall take place
as of the first to occur of the last day of the calendar month next following
the month in which such notice is given or the date on which title to the
Premises shall vest in the condemnor.
In the event of such a partial taking of conveyance of the Premises, if the
portion of the Premises taken or conveyed is so substantial that the Tenant can
no longer reasonably conduct its business, Tenant shall have the privilege of
terminating this Lease within sixty (60) days from the date of such taking or
conveyance, upon written notice to Landlord of its intention so to do, and upon
giving of such notice this Lease shall terminate on the last day of the calendar
month next following the month in which such notice is given, upon payment by
Tenant of the rent from the date of such taking or conveyance to the date of
termination.
If a portion of the Premises be taken by condemnation or conveyance in lieu
thereof and neither Landlord nor Tenant shall terminate this Lease as provided
herein, this Lease shall continue in full force and effect as to the part of
the Premises no so taken or conveyed, and the rent herein shall be apportioned
as of the date of such taking or conveyance so that thereafter the rent to be
paid by Tenant shall be in the ratio that the area of the portion of the
Premises not so taken or conveyed bears to the total area of the premises prior
to such taking.
23. SALE OR CONVEYANCE BY LANDLORD In the event of a sale or conveyance of
the Premises or any interest therein, by any owner of the reversion than
constituting Landlord, the transferor shall thereby be released from any further
liability upon any of the terms, covenants or conditions (express or implied)
herein contained in favor of Tenant, and in such event, insofar as such
transfer is concerned, Tenant agrees to look solely to the responsibility of
the successor in interest of such transferor in and to the Premises and this
Lease. This Lease shall not be affect by any such sale or conveyance, and
Tenant agrees to attorn to the successor in interest of such transferor.
24. ATTORNMENT TO LENDER OR THIRD PARTY In the event the interest of Landlord
in the land and buildings in which the leased Premises are located (whether
such interest of Landlord is a fee title interest of a leasehold interest) is
encumbered by deed of trust, and such interest is acquired by the lender of any
third party through judicial foreclosure or by exercise of a power of sale at
private trustee's foreclosure sale, Tenant hereby agrees to attorn to the
purchaser at any such foreclosure sale and to recognize such purchaser as the
Landlord under this Lease. In the event the lien of the deed of trust securing
the loan from a Lender to Landlord is prior and paramount to the Lease, the
Lease shall nonetheless continue in full force and effect for the remainder of
the unexpired term hereof, at the same rental herein reserved and upon all the
other terms, conditions and covenants herein contained.
25. HOLDING OVER Any holding over by Tenant after expiration or other
termination the term of this Lease with the written consent of Landlord
delivered to Tenant shall no constitute a renewal or extension of the Lease or
give Tenant any rights in or to the leased Premises except as expressly
provided in this Lease. Any holding over after the expiration other
termination of the term of this Lease, with the consent of Landlord, shall be
construed to be a tenancy from month to month, on the same forms and conditions
herein specified insofar as applicable except that the monthly Basic Rent shall
be increased to an amount equal to one hundred fifty (150%) percent of the
monthly Basic Rent required during the last month of the Lease term.
26. CERTIFICATE OF ESTOPPEL Tenant shall at any time upon not less than ten
(10) days prior written notice from the Landlord execute, acknowledge and
deliver to Landlord a statement in writing (i) certifying that this Lease is
unmodified and in full force and effect (or, if modified, stating the nature of
such modification and certifying that this Lease, as so modified, is in full
force and effect) and the date to which the rent and other charges are paid in
advance, if any, and (ii) acknowledging that there are not, to Tenant's
knowledge, any uncured defaults on the part of Landlord hereunder, or
specifying such defaults,if any, are claimed. Any such statement amy be
conclusively relied upon by nay prospective purchaser or encumbrancer of the
Premises. Tenant's failure to deliver such statement within such time shall be
conclusive upon Tenant that this Lease is in full force and effect, without
modification except as me be represented by Landlord; that there are no uncured
defaults in landlord's performance, and that not more than one month's rent has
been paid in advance.
27. CONSTRUCTION CHANGES It is understood that the description of the
Premises and the location of ductwork, plumbing and other facilities therein
are subject to such minor changes as Landlord or Landlord's architect
determines to be desirable in the course of construction of the Premises, and
no such changes shall affect this Lease or entitle Tenant to any reduction of
rent hereunder or result in any liability of Landlord to Tenant. Landlord does
not guarantee the accuracy of any drawings supplied to Tenant and verification
of the accuracy of any such drawings supplied to Tenant and verification of
the accuracy of such drawings rests with Tenant.
28. RIGHT OF LANDLORD TO PERFORM All terms, covenants and conditions of this
Lease to be performed or observed by Tenant shall be performed or observed by
Tenant at Tenant's sole cost and expense and without any reduction of rent. If
Tenant shall fail to pay any sum of money, or other rent, required to be
paid by it hereunder or shall fail to perform any other term or covenant
hereunder omits part of be performed, and such failure shall continue for five
(5) days after written notice thereof by Landlord, Landlord, without waiving or
releasing Tenant from any obligation of Tenant hereunder, may, but shall not be
obliged to, make any such payment or perform any such other term or covenant on
Tenant's part to be performed, All sums so paid by Landlord and all necessary
costs of such performance by Landlord together with interest thereon at the
rate of the prime rate of interest per annum as quoted by the Bank of America
from the date of such payment on performance by Landlord, shall be paid (and
Tenant covenants to make such payment) to Landlord on demand by Landlord, and
Landlord shall have (in addition to any other right or remedy of Landlord) the
same rights and remedies in the event of nonpayment by Tenant as in the case of
failure by Tenant in the payment of rent hereunder.
29. ATTORNEYS' FEES
A. In the event that either Landlord or Tenant should bring suit for the
possession of the Premises, for the recovery of any sum due under this Lease, or
because of the breach of any provision of this Lease, or for any other relief
against the other party hereunder, than all costs and expenses, including
reasonable attorneys' fees,
Initials: /s/
-----------
page 6 of 8 Initials: /s/
-----------
<PAGE> 7
incurred by the prevailing party therein shall be paid by the other party,
which obligation on the part of the other party shall be deemed to have accrued
on the date of the commencement of such action and shall be enforceable whether
or not the action is prosecuted to judgement.
B. Should Landlord be named as a defendant in any suit brought against
Tenant in connection with or arising out of Tenant's occupancy hereunder,
Tenant shall pay to Landlord its costs and expenses incurred in such suit,
including a reasonable attorney's fee.
30. WAIVER The waiver by either party of the other party's failure to perform
or observe any term, covenant or condition herein contained to be performed or
observed by such waiving party shall not be deemed to be a waiver of such term,
covenant or condition or of any subsequent failure of the party failing to
perform or observe the same or any other such term, covenant or condition
therein contained, and no custom or practice which may develop between the
parties hereto during the term hereof shall be deemed a waiver of, or in any way
affect, the right of either party to insist upon performance and observance by
the other party in strict accordance with the terms hereof.
31. NOTICES All notices, demands, requests, advices or designations which may
be or are required to be given by either party to the other hereunder shall be
in writing. All notices, demands, requests, advices or designations by Landlord
to Tenant shall be sufficiently given, made or delivered if personally served
on Tenant by leaving the same at the Premises or if sent by United States
certified or registered mail, postage prepaid, addressed to Tenant at the
Premises. All notices, demands, requests, advices or designations by Tenant to
Landlord shall be sent by United States certified or registered mail, postage
prepaid, addressed to Landlord at its offices at Peary/Arrillaga, 2560 Mission
College Blvd., Suite 101, Santa Clara, CA 95054.
Each notice, request, demand, advice or designation referred to in this
paragraph shall be deemed received on the date of the personal service or
mailing thereof in the manner herein provided, as the case may be.
32. EXAMINATION OF LEASE Submission of this instrument for examination or
signature by Tenant does not constitute a reservation of or option for a lease,
and this instrument is not effective as a lease or otherwise until its
execution and delivery by both Landlord and Tenant.
33. DEFAULT BY LANDLORD Landlord shall not be in default unless Landlord
fails to perform obligations required of Landlord within a reasonable time, but
in no event earlier than (30) days after written notice by Tenant to Landlord
and to the holder of any first mortgage or deed of trust covering the Premises
whose name and address shall have heretofore been furnished to Tenant in
writing, specifying wherein Landlord has failed to perform such obligations;
provided, however, that if the nature of Landlord's obligations is such that
more than thirty (30) days are required for performance, then Landlord shall
not be in default if Landlord commences performance within such thirty (30)
days period and thereafter diligently prosecutes the same to completion.
34. CORPORATE AUTHORITY If Tenant is a corporation (or a partnership), each
individual executing this Lease on behalf of said corporation (or partnership)
represents and warrants that he is dully authorized to execute and deliver this
Lease on behalf of said corporation (or partnership) in accordance with the
by-laws of said corporation (or partnership in accordance with the partnership
agreement) and that this Lease is binding upon said corporation (or
partnership) in accordance with its terms. If Tenants is a corporation, Tenant
shall, within thirty (30) days after execution of this Lease, deliver to
Landlord a certified copy of the resolution of the Board of Directors of said
corporation authorizing or ratifying the execution of this Lease.
36. LIMITATION OF LIABILITY In consideration of the benefits accruing
hereunder, Tenant and all successors and assigns covenant and agree that, in
the event of any actual or alleged failure, breach or default hereunder by
Landlord:
(a) the sole and exclusive remedy shall be against Landlord and
Landlord's assets;
(b) no partner of Landlord shall be sued or named as a party in any suit
or action (except as may be necessary to secure jurisdiction of the partnership
(c) no service of process shall be made against any partner of Landlord
(except as may be necessary to secure jurisdiction of the partnership);
(d) no partner of Landlord shall be required to answer or otherwise plead
to any service of process;
(e) no judgement will be taken against any partner of Landlord;
(f) any judgement taken against any partner of Landlord may be vacated
and set aside at any time without hearing;
(g) no writ of execution will ever be levied against the assets of any
partner of Landlord;
(h) these covenants and agreements are enforceable both by Landlord and
also by any partner of Landlord.
Tenant agrees that each of the foregoing covenants and agreements shall be
applicable to any covenant or agreement either expressly contained in this
Lease or imposed by statute or at common law.
37. SIGNS No sign, placard, picture, advertisement, name or notice shall be
inscribed, displayed or printed or affixed on or to any part of the outside of
the Premises or any exterior windows of the Premises without the written
consent of Landlord first had and obtained and Landlord shall have the right to
remove any such sign, placard, picture, advertisement, name or notice without
notice to and at the expense of Tenant. If Tenant is allowed to print or affix
or in any way place a sign in, on, or about the Premises, upon expiration or
other sooner termination of this Lease, Tenant at Tenant's sole cost and expense
shall both remove such sign and repair all damage in such a manner as to
restore all aspects of the appearance of the Premises to the condition prior to
the placement of said sign.
All approved signs or lettering on outside doors shall be printed, painted,
affixed or inscribed at the expense of Tenant by a person approved of by
Landlord.
Tenant shall not place anything or allow anything to be placed near the
glass of any window, door partition or wall which may appear directly from
outside the Premises.
38. MISCELLANEOUS AND GENERAL PROVISIONS
A. Use of Building Name. Tenant shall not, without the written consent
of Landlord, use the name of the building for any purpose other than as the
address of the business conducted by Tenant in the Premises.
page 7 of 8 Initials: /s/
----------
Initials: /s/
----------
<PAGE> 8
B. Choice of Law; Severability. This Lease shall in all respects be
governed by and construed with the laws of the State of California. If any
provision of this Lease shall be invalid, unenforceable or ineffective for any
reason whatsoever, all other provisions hereof shall be and remain in full force
and effect.
C. Definition of Terms. The term "Premises" includes the space leased
hereby and any improvements now or hereafter installed therein or attached
thereto. The term "Landlord" or any pronoun used in place thereof includes
the plural as well as the singular and the successors and assigns of Landlord.
The term "Tenant" or any pronoun used in place thereof includes in plural as
well as the singular and individuals, firms, associations, partnerships and
corporations, and their and each of their respective heirs, executors,
administrators, successors and permitted assigns, according to the context
hereof, and the provisions of this Lease shall inure to the benefit of and bind
such heirs, executors, administrators, successors and permitted assigns.
The term "person"includes the plural as well as the singular and
individuals, firms, associations, partnerships and corporations. Words used in
any gender include other genders. If there be more than one Tenant the
obligations of Tenant hereunder are joint and several. The paragraph headings
of this Lease are for convenience of reference only and shall have no effect
upon the construction or interpretation of any provision hereof.
D. Time of Essence: Time is of the essence of this Lease and of each
and all of its provisions.
E. Quitclaim. At the expiration or earlier termination of this Lease,
Tenant shall execute, acknowledge and deliver to Landlord, within ten (10) days
after written demand from Landlord to Tenant, any quitclaim deed or other
document required by any reputable title company, licensed to operate in the
State of California, to remove the cloud or encumbrance created by this Lease
from the real property of which Tenant's premises are a part.
F. Incorporation of Prior Agreements; Amendments. This instrument
along with any exhibits and attachments hereto constitutes the entire agreement
between Landlord and Tenant relative to the Premises and this agreement and
the exhibits and attachments may be altered, amended or revoked only by an
instrument in writing signed both Landlord and Tenant. Landlord and Tenant
agree hereby that all prior or contemporaneous oral agreements between and
among themselves and their agents or representatives relative to the leasing of
the Premises are merged in or revoked by this agreement.
G. Recording. Neither Landlord nor Tenant shall record this Lease or
a short form memorandum hereof without the consent of the other.
H. Amendments for Financing. Tenant further agrees to execute any
amendments required by a lender to enable Landlord to obtain financing, so long
as Tenant's rights hereunder are not substantially affected.
I. Additional Paragraphs, Paragraph 39 through 56 are added hereto
and are included as a part of this lease.
J. Clauses, Plats and Riders. Clauses, plats and riders, if any
signed by Landlord and Tenant and endorsed on or affixed to this Lease are part
hereof.
K. Diminution of Light, Air or View. Tenant convenants and agrees
that no diminution or shutting off of light, air or view by any structure which
may be hereafter erected (whether or not by Landlord) shall in any way affect
his Lease, entitle Tenant to any reduction of rent hereunder or result in any
liability of Landlord to Tenant.
IN WITNESS WHEREOF, Landlord and Tenant have executed and delivered this Lease
as of the day and year last written below.
LANDLORD: TENANT:
ARRILLAGA FAMILY TRUST VISIONEER, INC.,
a Delaware coporation
[sig] [sig]
By ------------------------------ By-----------------------------
John Arrillaga, Trustee
[sig] [sig]
Dated --------------------------- Title -------------------------
RICHARD T. PERRY SEPARATE PROPERTY TRUST
[sig] [sig]
By ------------------------------ Type or Print name ------------
Richard T. Peery, Trustee
6/27/96
Dated:-----------------------
6/27/96
Dated: --------------------------
page 8 of 8 Initials: -------------
Initials: -------------
<PAGE> 9
Paragraph 39 through 56 to Lease Agreement dated May 21, 1996 ("Lease") By and
Between the Arrillaga Family Trust and the Richard T. Peery Separate Property
Trust, as Landlord, and Visioneer, Inc., a Delaware corporation, as Tenant for
41,472 +_ Square Feet of Space Located at 34800 Campus Drive, Fremont,
California.
39. BASIC RENT: In accordance with Paragraph 4A herein, the total aggregate
sum of THREE MILLION FOUR HUNDRED EIGHTY THREE THOUSAND SIX HUNDRED FORTY EIGHT
AND NO/100 DOLLARS ($3,483,648.00), shall be payable as follows:
On August 1, 1996, the sum of FIFTY THREE THOUSAND NINE HUNDRED THIRTEEN
AND 60/100 DOLLARS ($53,913.60) shall be due, and a like sum due on the first
day of each month thereafter, through and including July 1, 1997.
On August 1, 1997, the sum of FIFTY FIVE THOUSAND NINE HUNDRED EIGHTY SEVEN
AND 20/100 DOLLARS ($55,987.20) shall be due, and a like sum due on the first
day of each month thereafter, through and including July 1, 1998.
On August 1, 1998, the sum of FIFTY EIGHT THOUSAND SIXTY AND 80/100 DOLLARS
($58,060.80) shall be due, and a like sum due on the first day of each month
thereafter, through and including July 1, 1999.
On August 1, 1999, the sum of SIXTY THOUSAND ONE HUNDRED THIRTY FOUR AND
40/100 DOLLARS ($60,134.40) shall be due, and a like sum due on the first day of
each month thereafter, through and including July 1, 2000.
On August 1, 2000, the sum of SIXTY TWO THOUSAND TWO HUNDRED EIGHT AND
NO/100 DOLLARS ($62,208.00) shall be due, and a like sum due on the first day of
each month thereafter, through and including July 1, 2001; or until the entire
aggregate sum of THREE MILLION FOUR HUNDRED EIGHTY THREE THOUSAND SIX HUNDRED
FORTY EIGHT AND NO/100 DOLLARS ($3,483,648.00) has been paid.
40. EARLY ENTRY: Tenant and its agents and contractors shall be permitted to
enter the Premises prior to the Commencement Date for the purpose of installing
at Tenant's sole cost and expense, Tenant's trade fixtures and equipment,
telephone equipment, security systems and cabling for computers. Such entry
shall be subject to all of the terms and conditions of this Lease, except that
Tenant shall not be required to pay any Rent on account thereof. Any entry or
installation work by Tenant and its agents in the Premises pursuant to this
Paragraph 40 shall (i) be undertaken at Tenant's sole risk, (ii) not interfere
with or delay Landlord's work in the Premises (if any), and (iii) not be deemed
occupancy or possession of the Premises for the purposes of this Lease. Tenant
shall indemnify, defend and hold Landlord harmless from any and all loss,
damage, liability, expense (including reasonable attorney's fees), claim or
demand of whatsoever character, direct or consequential, including, but without
limiting thereby the generality of the foregoing, injury to or death of persons
and damage to or loss of property arising out of the exercise by Tenant of any
early entry right granted hereunder. In the event Tenant's work in said
Premises delays the completion of the interior improvements to be provided by
Landlord, if any, or in the event Tenant has not completed construction of its
interior improvements by the scheduled Commencement Date, it is agreed between
the parties that this Lease will commence on the scheduled Commencement Date of
August 1, 1996 regardless of the construction status of said interior
improvements completed or to be completed by Tenant or Landlord. It is the
intent of the parties hereto that the commencement of Tenant's obligation to
pay Rent under the Lease not be delayed by any of such causes or by any other
act of Tenant (except as expressly provided herein) and, in the event it is so
delayed, Tenant's obligation to pay Rent under the Lease shall commence as of
the date it would otherwise have commenced absent delay caused by Tenant.
41. EARLY OCCUPANCY: In the event the Premises leased hereunder become
available for Tenant's use and occupancy prior to the scheduled Commencement
Date hereof, Tenant shall have the right to occupy the Premises as of the date
Landlord so completes said Premises for Tenant's use and occupancy. This Lease
shall commence and Tenant shall pay to Landlord, effective as of the date
Premises are delivered to Tenant, all Additional Rent expenses which are
Tenant's responsibility hereunder (however, Tenant shall not be responsible for
paying Basic Rent during the early occupancy period), and Tenant shall be
obligated to perform, and be bound by, each and every term, covenant, and
condition of this Lease. In the event Tenant occupies the Premises prior to
August 1, 1996, the Term of this Lease will be extended to include the early
occupancy period, i.e., if Tenant occupies said
Initial: /s/
----------
Page 9
<PAGE> 10
space on July 1, 1996, the Lease Term will be extended for one (1) month from a
five (5) year Term to a five (5) year one (1) month Term).
42. "AS-IS BASIS: Subject only to Paragraphs 51 ("Punch List") and 55
("Maintenance of the Premises") and to Landlord making the improvements shown
on Exhibit B to be attached hereto and further subject to the improvements
Landlord shall make related to the Option Space pursuant to the terms of
Paragraph 49, it is hereby agreed that the Premises leased hereunder is leased
strictly on an "as-is" basis and in its present condition, and in the
configuration as shown on Exhibit B to be attached hereto, and by reference
made a part hereof. Subject only to Paragraphs 51 and 55, it is specifically
agreed between the parties that after Landlord makes the interior improvements
as shown on Exhibit B, Landlord shall not be required to make, nor be
responsible for any cost, in connection with any repair, restoration, and/or
improvement to the Premises in order for this Lease to commence, or thereafter,
throughout the Term of this Lease.
43. CONSENT. Whenever the consent of one party to the other is required
hereafter, such consent shall not be unreasonably withheld.
44. CHOICE OF LAW: SEVERABILITY. This Lease shall in all respects be governed
by and construed in accordance with the laws of the State of California. If
any provisions of this Lease shall be invalid, unenforceable, or ineffective
for any reason whatsoever, all other provisions hereof shall be and remain in
full force and effect.
45. ASSESSMENT CREDITS: The demised property herein may be subject to a
special assessment levied by the City of Fremont as part of an Improvement
District. As a part of said special assessment proceedings (if any),
additional bonds were or may be sold and assessments were or may be levied to
provide for construction contingencies and reserve funds. Interest shall be
earned on such funds created for contingencies and on reserve funds which will
be credited for the benefit of said assessment district. To the extent
surpluses are created in said district through unused contingency funds,
interest, earnings or reserve funds, such surpluses shall be deemed the
property of Landlord. Notwithstanding that such surpluses may be credited on
assessments otherwise due against the Leased Premises, Tenant shall pay to
Landlord within thirty (30) days of receipt of Landlord's statement (with the
related tax bill), as Additional Rent if, and at the time of any such credit of
surpluses, an amount equal to all such surpluses so credited. For example: if
(i) the property is subject to an annual assessment of $1,000,000 and (ii) a
surplus of $200.00 is credited towards the current year's assessment which
reduces the assessment amount shown on the property tax bill from $1,000.00 to
$800.00, Tenant shall, upon receipt of notice from Landlord, pay to Landlord
said $200.00 credit as Additional Rent.
46. ASSIGNMENT AND SUBLETTING (CONTINUED):
A. In addition to and notwithstanding anything to the contrary in
Paragraph 16 of this Lease, Landlord hereby agrees to consent to Tenant's
assigning or subletting said Lease to: (i) any parent or subsidiary
corporation, affiliate, or corporation with which Tenant merges or
consolidates, provided that the net worth of said parent or subsidiary
corporation, affiliate, or said corporation has a net worth equal to or greater
than the net worth of Tenant at the time of such assignment, merger, or
consolidation; or (ii) any third party or entity to whom Tenant sells all or
substantially all of its assets; provided, that the net worth of the resulting
or acquiring corporation has a net worth after the merger, consolidation or
acquisition equal to or greater than the net worth of Tenant at the time of
such merger, consolidation or acquisition. No such assignment or subletting
will release the Tenant from its liability and responsibility under this Lease
to the extent Tenant continues in existence following such transaction.
Notwithstanding the above, Tenant shall be required to (a) give Landlord written
notice prior to such assignment or subletting to any party as described in (i)
and (ii) above, and (b) execute Landlord's consent document prepared by Landlord
reflecting the assignment or subletting.
B. Excess Rent. In addition to and notwithstanding anything to the
contrary in Paragraph 16, Tenant, prior to sharing such excess rent with
Landlord, shall first be entitled to recover from such excess rent: (i) the
amount of any reasonable leasing commissions paid by Tenant to third parties
not affiliated with Tenant; and (ii) a maximum of $1.00 per square foot (of the
subleased space) for expense incurred by Tenant as related to tenant
improvements Tenant is required to make and pay for on behalf of said
subtenant. Said $1.00 per square foot allowance is limited to the subleased
space and can never exceed a total of $41,472.00 for the 41,472+/- square feet
leased.
Page 10 Initial: /s/
------------
<PAGE> 11
hereunder, or a total of $51,840.00 provided Tenant's space is expanded as
provide for under Lease Paragraph 49, throughout the Term of this Lease,
regardless of the number of times Tenant may sublease the Premises.
47. HAZARDOUS MATERIALS: Landlord and Tenant agree as follows with respect
to the existence or use of "Hazardous Materials" (as defined herein) on, in,
under or about the Premises and real property located beneath said Premises
(hereinafter collectively referred to as the "Property");
As used herein, the term "Hazardous Materials" shall mean any hazardous or toxic
substance, material or waste which is of becomes subject to or regulated by any
local governmental authority, the State of California, or the United States
Government. The term "Hazardous Materials" includes, without limitation any
material or hazardous substance which is (i) listed under Article 9 or defined
as "hazardous" or "extremely hazardous" pursuant to Article 11 of Title 22 of
the California Administrative Code, division 4, Chapter 30, (ii) listed or
defined as "hazardous waste" pursuant to the Federal Resource Conservation and
Recovery Act, Section 42 U.S.C Section 6901 et. seq., (iii) listed or defined
as a "hazardous substance" pursuant to the Comprehensive Environmental
Response, Compensation and Liability Act, 42 U.S.C Section 9601 et. seq. (42
U.S.C Section 9601), (iv) petroleum or any derivative of petroleum, or (v)
asbestos.
Subject to the terms of this Paragraph 47, Tenant shall have no obligation to
"clean up", reimburse, release, indemnify, or defend Landlord with respect to
any Hazardous Materials or wastes which Tenant (prior to and during the Term of
the Lease) or other parties on the Property, as described below, (during the
Term of this Lease) did not store, dispose, or transport in, use, or cause to
be on the Property or which Tenant, its agents, employees, contractors,
vendors, invitees, visitors or its future subtenants and/or assignees (if any)
(during the Term of this Lease), did not store, dispose, or transport in, use
or cause to be on the Property in violation of applicable law.
Tenant shall be 100 percent liable and responsible for: (i) any and all
"investigation and cleanup" of said Hazardous Materials contamination which
Tenant, its agents, employees, contractors, vendors, invitees, visitors or its
future subtenants and/or assignees (if any), or other parties on the Property,
does store, dispose, or transport in, use or cause to be on the Property, and
(ii) any claims, including third party claims, resulting from such Hazardous
Materials contamination. Tenant shall indemnify landlord and hold Landlord
harmless from any liabilities, demands, costs, expenses and damages, including,
without limitation, attorneys fees incurred as a result of any claims resulting
from such Hazardous Materials contamination.
Tenant also agrees not to use or dispose of any Hazardous Materials on the
Property without first obtaining Landlord's written consent; provided, however,
that Landlord's consent shall not be required for normal use of customary
household and office supplies (Tenant shall provide Landlord with a list of
said materials used), such as cleaner, lubricants, solvents, copier toner,
etc. Tenant agrees to complete compliance with governmental regulations
regarding the use or removal or remediation of Hazardous Materials used,
stored, disposed of, transported or caused to be on the Property as stated
above, and prior to the termination of said Lease, Tenant agrees to follow the
proper closure procedures and will obtain a clearance from the local fire
department and/or the appropriate governing agency. If Tenant uses Hazardous
Materials, Tenant also agrees to install, at Tenant's expense, such Hazardous
Materials monitoring devices as Landlord deems reasonably necessary. It is
agreed that the Tenant's responsibilities related to Hazardous Materials will
survive the termination date of the Lease and that landlord may obtain specific
performance of Tenant's responsibilities under this Paragraph 47.
48. OPTION TO EXTEND INITIAL LEASE TERM FOR FOUR (4) YEARS: Provided
Tenant is not in default (pursuant to Paragraph 19 of the Lease, i.e., Tenant
has received notice and any applicable cure period has expired without cure) of
any of the terms, covenants, and conditions of this Lease, landlord hereby
grants to Tenant an Option to Extend the initial Term of this Lease for and
additional four (4) year period (the "Extended Term") upon the following terms
and conditions:
A. Tenant shall give Landlord written notice of Tenant's exercise of
this Option to Extend not later than six (6) months prior to the scheduled
Termination Date of the initial Lease Term, which Termination Date is currently
projected to be July 31, 2001, in which event the Lease shall be considered
extended for and additional four (4) years, commencing the day immediately
following the Termination Date of the initial Lease Term (for example: if
Tenant exercises its Option to Extend as set forth herein the Termination Date
of this Lease shall be extended to July 31, 2005 (subject however to further
extension if Tenant exercises its Option to Expand as provided for in Paragraph
49 ("Option to Expand") below), upon the same terms and conditions, absent this
Paragraph 48, and subject to the
Page 11 Initial: /s/
-------
<PAGE> 12
Basic Rental set forth below. In the event that Tenant fails to timely
exercise Tenant's option as set forth herein in writing, Tenant shall have no
further Option to Extend this Lease, and this Lease shall continue in full
force and effect for the full remaining term hereof, absent this Paragraph 48.
B. The following summarizes the Basic Monthly Rental and the related
per square foot charge by period under the Lease that would be applied to the
Extended Term:
Extended Monthly
Term Period PSF Basic Rental Rate
----------- ---------------------
08/01/01-07/31/02 $1.55
08/01/02-07/31/03 $1.60
08/01/03-07/31/04 $1.65
08/01/04-07/31/05 $1.70
C. The option rights of Tenant under this Paragraph 48, and the
Extended Term thereunder, are granted for Tenant's personal benefit and may not
be assigned or transferred by Tenant,(except to a parent or subsidiary
corporation, or corporation with which Tenant merges or consolidates or to whom
Tenant sells all or substantially all of its assets as provided for in
Paragraph 46) either voluntarily or by operation of law, in any manner
whatsoever. In the event that Landlord consents to a sublease or assignment
under Paragraph 16, the option granted herein and any Extended Term thereunder
shall be void and of no force and effect, whether or not Tenant shall have
purported to exercise such option prior to such assignment or sublease.
D. INCREASED SECURITY DEPOSIT: In the event the term of Tenant's
Lease is extended pursuant to this Paragraph 48, Tenant's Security Deposit
shall be increased to equal twice the Basic Rental due for the last month of
the Extended Term.
49. OPTION TO EXPAND: Provided Tenant is not in default (pursuant to
Paragraph 19 of the Lease, i.e., Tenant has received notice and any applicable
cure period has expired without cure) of any of the terms, covenants, and
conditions of this Lease, and subject to Landlord's review and approval (at
Landlord's sole and absolute discretion) of Tenant's financial condition at the
time Tenant exercises said Option to Expand, Landlord has agreed to give Tenant
an exclusive Option to Expand into approximately 10,368 + square feet as
shown in Orange on Exhibit C to be attached hereto, (hereinafter called "Option
Space") under the following terms and conditions:
A. Tenant may elect to exercise its Option to Expand at any time
during the initial Lease Term, but not later February 1, 2001, by notifying
Landlord in writing that Tenant is exercising its Option to Expand. Such
notice must be postmarked on or before the above specified date and sent by
certified mail, return receipt requested. If for any reason the notice is not
duly and timely given, Tenant's rights under this Option to Expand will be null
and void and without further force or effect.
B. The notice given by Tenant to Landlord pursuant to Paragraph 49A
above, shall be accompanied by the following:
(i) Tenant's current quarterly financial statement certified by the
president or chief financial officer and the last annual audited financial
statements. The financial statements are to include income statements, balance
sheets, statements of cash flow, and footnotes and auditor's opinion:
(ii) Tenant's written authorization to all credit rating agencies
and financial institutions of Tenant to release their credit report and/or
ratings:
(iii) A check in an amount equal to the Basic Rent due during the
projected last month of the Extended Term multiplied by two(2), less the amount
of the Security Deposit due Landlord and paid by Tenant under Lease Paragraph
4G; and
(iv) A 1/8 inch scale sepia detailed floor plan reflecting
Tenant's desired interior improvements to be constructed in the Option Space.
C. Landlord, at its expense, shall prepare the Option Space with
standard improvements similar in quality to those improvements to be provided
to Tenant by Landlord in the space leased hereunder and in the same general
configuration of the Premises leased hereunder. Tenant shall accept the Option
Space upon receipt of notice from Landlord that Landlord has
Page 12 Initial: /s/
------------
<PAGE> 13
completed its improvements and the Option Space is available for Tenant's
occupancy (the "Availability Date"), notwithstanding that minor details of
construction may remain to be completed (in which case the parties shall agree
in writing to "punch list" items, which Landlord shall complete during
Landlord's normal business hours while Tenant occupies the Option Space without
affecting Tenant's monetary and other obligations under this Lease).
D. If the work required of Landlord under Paragraph 49C above is
delayed due to work, changes, alterations, or additions required or made by
Tenant or due to any other delay or default on the part of Tenant, all of
Tenant's monetary obligations respecting the Option Space shall commence as of
the Date on which it would have been available for Tenant's occupancy had such
delay not occurred.
E. Notwithstanding anything above, if Tenant uses all or any
portion of the Option Space on a date earlier than that on which it is available
for Tenant's occupancy, all of Tenant's monetary and other obligations
respecting the Option Space shall commence as of the earlier date. Tenant
shall have the same rights of early entry for the Option Space as provided in
Paragraph 40 for the original Premises.
F. The Option Space shall be deemed demised to Tenant on the
Availability Date and this Lease will be deemed modified in the following
respects:
(i) The description of the Premises shall include the
additional Option Space and the Leased square footage shall be increased from
approximately 41,472+_ to approximately 51,840+_ square feet;
(ii) The Term of the Lease, as related to the entire Leased
Premises of 51,840+_ square feet, shall be extended from its original five (5)
year Term for an additional period of five (5) years from the Availability
Date (the "Option Term");
(iii) The monthly Basic Rent payable hereunder shall be
increased on the Availability Date by an amount equal to the product of: (a)
the Option Space multiplied by (b) the monthly Basic Rent per square foot rate
(of the original Premises leased hereunder) in effect on the Availability
Date. The monthly Basic Rent during the Option Term shall be increased by
$0.05 per square foot per year on each anniversary of the original Commencement
Date of the Lease. For Example: If the Availability Date is September 1,
2000, the monthly Basic Rent per square foot rate charged on the entire 51,840+_
square feet Leased would be $1.50 for the period of September 1, 2000 through
July 31, 2001, and would be increased by $.05 per square foot on August 1 of
each year thereafter, and the Lease Term for the entire Premises, as expanded,
would be extended Five (5) years from September 1, 2000 to August 31, 2005.
G. Although no Amendment to the Lease shall be necessary to
evidence such modifications to the Lease, Tenant agrees to execute and deliver
to Landlord an Amendment prepared by Landlord confirming that this Lease is
so modified.
I. The Option to Expand is invalid and Tenant shall not have any
rights under this Paragraph 49 if Tenant does not give Landlord notice
according to Paragraph 49A, or if at the time Tenant gives notice to Landlord
to Tenant's exercise of its Option to Expand:
(i) Tenant is, at any time prior to exercising its Option to
Expand, in default (pursuant to Paragraph 19 of the Lease, i.e., Tenant has
received notice and any applicable cure period has expired without cure) of any
of the terms, covenants, and conditions of this Lease. It is further agreed
that if Tenant has exercised its Option to Expand and is subsequently in default
prior to, or at the time the lease commences on said Option Space, Landlord may
at its sole and absolute discretion, rescind Tenant's Option to Expand into said
10,368+_ Option Space, and this Lease shall continue in full force and effect
for the full remaining term hereof, absent of this Paragraph 49;
(ii) Tenant does not occupy one hundred percent (100%) of
the original Premises;
(iii) Any lender (whose deed of trust, mortgage, or other
security interest affects either (a) the Premises or (b) Landlord) does not
approve Tenant's credit worthiness or if Landlord does not approve Tenant's
credit worthiness in its solo and absolute discretion;
(iv) Landlord cannot obtain all the necessary building
permits for said Option Space within 90 days from the date Landlord receives
written notice of Tenant's exercise of its Option, the rights of Tenant
hereunder as related to the Option Space shall be null and void and
Page 13 Initial: /s/
------------
<PAGE> 14
Landlord shall not have any liability to Tenant, of any type whatsoever related
to the Option to Expand, and ,subject to (v) below, this Lease shall continue in
full force and effect for the full remaining term hereof, absent this Paragraph
49. Landlord agrees to use its best efforts to obtain the required permits
within the aforementioned 90-day period. Tenant understands that, as of the
date of this Lease, the Option Space is not constructed, but would be
constructed by Landlord as an addition to said building subject to the terms of
this Paragraph 49.
(v) in the event this Lease has been extended as provided for
in Paragraph 46 ("Option to Extend") and Landlord is unable to obtain the
building permits as required for the Option Space within ninety (90) days as
provided for in (iv) above, Tenant may elect to rescind its Option to Extend by
giving Landlord written notice of its election to rescind within (30) days
following Landlord's notice to Tenant that Landlord cannot obtain all the
necessary building permits required for the Option Space within said ninety
(90) day period. In the event Tenant so exercises its right to rescind its
previously exercised Option to extend, Tenant's Lease shall terminate on the
later of (i) the termination date of the initial Lease Term or (ii) ninety (90)
days following receipt by Landlord of Tenant's written election to rescind its
Option to Extend, and said Lease shall be amended to reflect said election by
Tenant and the revised Lease Termination Date.
50. ASSOCIATION DUES: The premises leased hereunder is located within a
planned development and are subject to the terms and conditions stated in the
Amended and Restated Declaration of Protective Convenants for Ardenwood
Technology Park Agreement which includes the Ardenwood Property Owner's
Association (recorded June 29, 1984 (the "Agreement"). Said Premises is
subject to Association Dues to fund the cost of the Association's expense as
authorized under said Agreement. As of the date of this Lease, Tenant's
prorata share of the Association Dues is currently estimated at $2,089 per year
and is subject to adjustment as provided for in said Agreement. Tenant has
received a copy of the Agreement and understands that it will not be a member of
the Association.
51. PUNCH LIST. In addition to and notwithstanding anything to the
contrary in Paragraphs 5 ("Acceptance and Surrender of Premises") and 42 ("As
is Basis") of this Lease, Tenant shall have thirty (30) days after the
Commencement Date to provide Landlord with a written "punch list" pertaining to
defects in the interior improvements constructed by Landlord for Tenant. As
soon as reasonably possible thereafter, Landlord, or one of Landlords
representatives (if so approved by Landlord), and Tenant shall conduct a joint
walk-through of the Premises (if Landlord so requires), and inspect such Tenant
Improvements, using their best efforts to agree on the incomplete or defective
construction related to the Tenant Improvements installed by Landlord. After
such inspection had been completed, Landlord shall prepare, and both parties
shall sign, a list of all "punch list" items which the parties reasonably
agree to be corrected by Landlord (but which shall exclude any damage or
defects caused by Tenant, its employees, agents or parties Tenant has
contracted with to work on the Premises. Landlord shall have thirty (30) days
thereafter (or longer if necessary, provided Landlord is diligently pursuing
the completion of the same) to complete, at Landlord's expense, the "punch
list" items without the Commencement Date of the Lease and Tenant's obligation
to pay Rental thereunder being affected. Notwithstanding the foregoing, a
crack in the foundation, or exterior walls that does not endanger the
structural integrity of the building, or which is not life-threatening, shall
not be considered material, nor shall Landlord be responsible for repair of
same. This Paragraph shall be of no force and effect if Tenant shall fail to
give any such notice to Landlord within thirty (30) days after the Commencement
Date of this Lease.
52. ASSIGNMENTS OF WARRANTIES: During the term of the Lease, Landlord
hereby assigns to Tenants all of Landlord's Contractor's warranties and shall
cooperate with Tenant in enforcing any of such warranties except that Landlord
shall not be required to pay any legal fees or incur any expenses in this
regard.
53. TENANT'S RIGHT TO CONTEST REAL ESTATE TAX ASSESSMENTS: In addition to
and notwithstanding anything to the contrary contained in Paragraph 9 ("Taxes"),
it is agreed that Tenant shall have the right to contest the real estate taxes
and/or assessments levied against the Premises lease hereunder with the
specific understanding and agreement that any such contest shall in no way and
in no event relieve Tenant from Tenant's responsibility to pay all real estate
taxes and assessments as they appear on the tax bill as they become due. I the
event any such contest by Tenant is successful, the proportionate portion of
the refund to relating to real estate taxes and assessments actually paid by
Tenant shall be refunded to Tenant. It is further understood
Page 14 Initial: [sig]
___________
<PAGE> 15
and agreed that Landlord shall in no event be responsible for any liability or
for any cost or expense incurred by Tenant by reason of Tenant's contest of
such taxes and/or assessments.
54. SECURITY DEPOSIT IN THE FORM OF AN IRREVOCABLE STANDBY LETTER OF
CREDIT: The cash Security Deposit provided for in Paragraph 4G of the Lease
shall be deposited by Tenant with Landlord upon execution of this Lease;
however, Tenant shall have the right, at Tenant's sole election, to replace
one-half of the cash Security Deposit half by Landlord with an irrevocable
letter of credit, drawn upon an institutional lender reasonably acceptable to
Landlord in form and content reasonably satisfactory to landlord and for a term
equal to the Term of the Lease plus a period of thirty (30) days. One half of
the cash Security Deposit held by Landlord shall be refunded to Tenant upon
Landlord's receipt of an acceptable irrevocable letter of credit. Such
irrevocable letter of credit shall be renewed by the issuer prior to the
renewal date thereof from time to time during the lease Term, and shall be held
by Landlord as security for the faithful performance by tenant of all the
terms, covenants and conditions of this Lease to be kept and performed by
Tenant. Notwithstanding to the contrary above, the irrevocable letter of
credit shall state that if, for any reason, the issuer is unable or unwilling to
so renew the irrevocable letter of credit, the issuer shall automatically,
without demand from Landlord, on or before any renewal date of such irrevocable
letter of credit, deposit cash with Landlord i the amount of $62,208.00 as set
forth in Paragraph 4G of this Lease. If Tenant defaults with respect to any
provisions of the Lease and has not cured said default within the period
allowed under Paragraph 19, including but not limited to provisions relation to
the payment of Rent, Landlord may (but shall not be required to) draw down on
the irrevocable letter of credit for payment of any sum which Landlord may
spend or become obligated to spend by reason of Tenant's default, or to
compensate Landlord for any loss or damage which Landlord may suffer by reason
of Tenant's default. Landlord and Tenant acknowledge that such irrevocable
letter of credit shall be treated as if it were a cash Security Deposit, and
such irrevocable letter of credit may be drawn upon by Landlord upon written
demand by Landlord presented to the issuer certifying that: "An event of
default by Tenant pursuant to Paragraph 19 ("Bankruptcy and Default") of that
certain Lease Agreement dated May 21, 1996, between Landlord and Tenant, has
occurred (i.e., a default has occurred, Tenant has received notice of the
default and any applicable cure period has expired without cure).". Landlord
acknowledges that is not entitled to draw sown such irrevocable letter of
credit unless Landlord would have been entitled to draw upon a cash Security
Deposit pursuant to the terms of Paragraph 4G of the Lease. Concurrently with
the delivery of the required information to the issuing bank, Landlord shall
deliver to Tenant written evidence of the default upon which the draw down was
based, together with evidence that Landlord has provided to Tenant the written
notice of such default which was required under the applicable provision of
Lease Paragraph 19, and evidence of the failure of Tenant to sure such default
within the applicable grace period following receipt of such notice of
default. If any portion of the irrevocable letter of credit is used or applied
pursuant hereto, tenant shall, within ten (10) days after receipt of a written
demand therefor from Landlord, restore and replace the value of such security
by either (i) depositing cash with Landlord in the amount equal to the sum
drawn down under the irrevocable letter of credit, or (ii) increasing the
irrevocable letter of credit to its value immediately prior to such
application. Tenant's failure to replace the value of the security as provided
in the preceding sentence shall be a material breach of its obligation under
this Lease.
55. MAINTENANCE OF THE PREMISES: In addition to, and notwithstanding
anything to contrary in Paragraph 7, Landlord shall repair damage to the
structural shell, foundation, and roof structure (but not the interior
improvements, roof membrane, or glazing) of the building leased hereunder at
Landlord's cost and expense provided Tenant has not caused such damage, in
which event Tenant shall be responsible for 100 percent of any such costs for
repair or damage so caused by Tenant. Notwithstanding the foregoing, a crack,
in the foundation, or exterior walls that does not endanger the structural
integrity of the building, or which is not life-threatening, shall not be
considered material, nor shall Landlord be responsible for repair of same.
56. REPLACEMENT OF HVAC AND/OR ROOF MEMBRANE: In the event it is necessary
to completely replace an air-conditioning unit, including condenser, and/or to
replace the entire roof membrane (provided said replacement is not the result
of Tenant's failure to maintain and repair said items or as a result of tenant's
excessive use and/or damage caused by Tenant, its agents, employee, invitees,
contractors, or its future subtenants and/or assignees (if any) to said items
during the Term of the Lease), Landlord shall have said items replaced and
shall amortize the cost of said expense over a period equal to the lesser of
(i) the useful life of said replacement in accordance with standard accounting
practices or (ii) ten (10) years, and Tenant shall be responsible for paying to
Landlord one hundred percent (100%) of Tenant's pro rate share of the
Page 15 Initial: [sig]
_______________
<PAGE> 16
amortization of said cost of said replacement based on the entire Term of this
Lease. For Example: In the event, during the initial Lease Term of five (5)
years: (i) an air-conditioning unit is replaced at a cost of $5,000: and (ii)
said air-conditioning unit has a useful life of fifteen years. Tenant would be
charges $2,500 as Additional Rent, in which case the $2,500 would be due within
thirty (30) days of Tenant's receipt of notice from Landlord ($5,000 / 10 years
x 5 years = $2,500). tenant hereby waives all rights under, and benefits of
subsection i of Section 1932 and Sections 1941 and 1942 of the California Civil
Code and under any similar law, statue or ordinance now or hereafter in effect.
In the event, the Term of the Lease is extended, pursuant to Paragraph 48
("Option to Extend"), Paragraph 49 ("Option to Expand") or by any other
agrement between Landlord and Tenant, Tenant's pro rata share of the earlier
replacement cost shall be increased to include the additional amount payable to
Landlord due to the Extended Term of the Lease. For Example: In the event: (i)
the air-conditioning unit was replaced as illustrated above; and (ii) Tenant
exercises its Option to Extend this Lease for an additional four year period,
Tenant would be liable for an additional payment to Landlord of $2,000 as
Additional Rent. Said payment would be due in full immediately upon Tenant's
exercise of its option to Extend.
Page 16 Initial: [sig]
______________
<PAGE> 1
Exhibit 11.1
VISIONEER, INC.
COMPUTATION OF NET LOSS PER
COMMON SHARES AND EQUIVALENTS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended June 30,
---------------------------
1996 1995
---------- ----------
<S> <C> <C>
Weighted average common shares outstanding..................................... 19,034 2,289
Weighted average common equivalent shares from convertible preferred
stock and warrants, calculated using the if-converted method................. -- 7,872
Common equivalent shares from convertible preferred stock and options
issued subsequent to September 30, 1994, included pursuant to Staff
Accounting Bulletin No. 83................................................... -- 5,019
Weighted average common stock equivalents from options......................... -- --
------- -------
Weighted average common shares and equivalents................................. 19,034 15,180
======= =======
Net loss....................................................................... $(6,321) $(3,224)
======= =======
Net loss per share............................................................. $ (0.33)
=======
Pro forma net loss per share................................................... $ (0.21)
=======
<CAPTION>
Six Months Ended June 30,
---------------------------
1996 1995
---------- ----------
<S> <C> <C>
Weighted average common shares outstanding..................................... 18,987 2,289
Weighted average common equivalent shares from convertible preferred
stock and warrants, calculated using the if-converted method................. -- 7,872
Common equivalent shares from convertible preferred stock and options
issued subsequent to September 30, 1994, included pursuant to Staff
Accounting Bulletin No. 83................................................... -- 5,019
Weighted average common stock equivalents from options......................... --
------- -------
Weighted average common shares and equivalents................................. 18,987 15,180
======= =======
Net loss....................................................................... $(6,264) $(6,187)
======= =======
Net loss per share............................................................. $ (0.33)
=======
Pro forma net loss per share................................................... $ (0.41)
=======
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
condensed balance sheet, condensed statement of operations and condensed
statement of cash flows included in the Company's Form 10-Q for the three and
six month period ending June 30, 1996, and is qualified in its entirety by
reference to such financial statements and the notes thereto.
</LEGEND>
<MULTIPLIER> 1000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-29-1996 DEC-29-1996
<PERIOD-START> APR-01-1996 JAN-01-1996
<PERIOD-END> JUN-30-1996 JUN-30-1996
<CASH> 33343 33343
<SECURITIES> 9273 9273
<RECEIVABLES> 10715 10715
<ALLOWANCES> 2245 2245
<INVENTORY> 8805 8805
<CURRENT-ASSETS> 61670 61670
<PP&E> 3220 3220
<DEPRECIATION> 596 865
<TOTAL-ASSETS> 65130 65130
<CURRENT-LIABILITIES> 14567 14567
<BONDS> 15264 15264
0 0
0 0
<COMMON> 19 19
<OTHER-SE> 50544 50544
<TOTAL-LIABILITY-AND-EQUITY> 65130 65130
<SALES> 8009 21209
<TOTAL-REVENUES> 9783 27989
<CGS> 7039 17575
<TOTAL-COSTS> 7228 18475
<OTHER-EXPENSES> 9512 17017
<LOSS-PROVISION> 0 0
[INTEREST-INCOME] 661 1273
<INTEREST-EXPENSE> (25) (34)
<INCOME-PRETAX> (6321) (6264)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (6321) (6264)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (6321) (6264)
<EPS-PRIMARY> (0.33) (0.33)
<EPS-DILUTED> (0.33) (0.33)
</TABLE>
